2018 Budget: Another round of motion without movement

“It’s a cycle and the movement around it must return to the same point. The Sayers will not go wrong and the outcome must be the same,” says a retiree from the Federal Ministry of Education, Mr. Mike A. Iheaka.

True to Iheaka’s sentiment, issues about Nigeria’s budget are now unending. From the recurring poor budget performance implementation since return to civil rule in 1999, to misplacement of priorities, the “self-inflicted” three-year economic crisis since 2014 has added a shortage of funds to the phenomenon.

Consequently, the government has embarked on several “funds hunting,” even without barriers- tax reforms, sale of assets, stolen funds’ recoveries and debt bargains, among others. Yet the agitation for a commensurate implementation is far from over and the yearly deficit plan is permanently in the document.

The Controversy
This is the case with 2016 and 2017 budget and there are palpable fears of same outcome for 2018 budget presented few days ago. Questions over what happened to 2016 and 2017 plans remain.

The Budget Office of the Federation, led by Mr. Ben Akabueze, recently said the execution of the 2017 budget in the second quarter of the year was very challenging in several fronts, mainly due to the extension of the 2016 capital budget to May 5, 2017, effectively halting execution of the 2017 capital budget in the first half of the fiscal year.

Again, he said the execution of the 2017 budget was also adversely impacted by the late passage of the budget, as well as the shortfall in expected oil and non-oil revenue receipts.

His declaration, contained in the 2017 Second Quarter Budget Implementation Report recently released, also affirmed that the 2017 Fiscal Framework projected a quarterly fiscal deficit of N589.19 billion. It was to be financed through earnings from privatization of N2.5 billion, foreign borrowing of N266.88 billion, domestic borrowing (FGN Bond) of N313.57 billion and sale of government properties of N6.25 billion.

The 2017 plan, though signed into law barely five months ago, with six months behind and one month to end the year, authoritative source from economy managers said only N450 billion has been released for capital votes, out of the over N2 trillion estimate. The problem, according to the source is finding challenge, corroborating the budget office’s report.

With N7.4 trillion in 2017 and now proposed to be N8.6 trillion, a new argument has arisen over the rationale behind the figure, if 2017 figure was not implementable, how much less the possibility for the higher number.

Commenting on the capital budget implementation scorecard of the 2017 plan in its four months execution, a public finance expert and Lead Director of the Centre for Social Justice (CSJ), Eze Onyekpere, said the N450 billion capital votes released represented only about 20 per cent of the estimate and a very poor performance.

Onyekpere, who leads the non-governmental organisation that is championing the mainstreaming of accountability and probity in public finance, also attributed the poor performance to poor revenue performance and the disjointed budgetary calendar.

He said that resetting of the budget calendar is the only way to correct the misnomer where government would be looking for loan in 2018 to implement 2017 appropriation.

“How can you be looking for funding in October to implement a 2017 budget? Where did you keep the revenue generated during the year? How can you be using 2017 revenue to implement 2016 plan?

“All the unaccomplished plans in 2017 should find space in the 2018 plan and whatever is the balance for the new plan can now take care of the new projects. Therefore, they must end every project of 2017 on, December 31 this year,” he advised.

The Chief Executive Officer, BudgIT, Seun Onigbinde, has described Nigeria’s yearly budget as a ‘contract vending machine,’ as well as fulfillment of a hollow ritual, rather than development plan.

He also said majority of states’ budgets are wishful lists, as the budgets are far higher than the state’s revenue sources, while the executives do not really mean what they put in the document.

The yearly budget he said has been a bundle of disappointment and at best, a course that one already knows where it would always end right from the start.

“Nigeria’s budget is a contract vending machine, rather than a planning document. This is because a typical budget will first bring all the arms of government together and follow the goals. Then, everything you will see in the budget in terms of allocation will follow that pattern.

“But here, every arm wants to stuff things into the budget, so that it becomes a legal opportunity to procure and that is the problem,” he said, adding that it is the same reason why yearly budgets have not made any impact.

A Professor of Economics and Executive Chairman of Society of Analytical Economics, Prof. Godwin Owoh, countered the idea of rolling plan, arguing that it goes against the spirit and letters of Section 382 of the Nigerian Constitution, which clearly spells out the way and manner in which appropriations are to be undertaken.

“The issue of rolling over of budgets was never contemplated by the Constitution because it clearly states that every budget year must run for 12 months and should there be any cause for a delay, that the President shall order the withdrawal from the Consolidated Revenue Fund of the Federal Government the sum for the purposes of running of government, an amount not exceeding as the same approved in the preceding year until such a time that a new fiscal plan is approved.

“And the President is authorised under that Section of the Constitution to do this without resort to any organ of government, including the National Assembly.

“The idea of rolling over a plan to another is a misnomer and an illegality because the matter of appropriation is a constitutional matter. The Nigerian economy has been run on a wrong interpretation. This is the time to correct this,” he said.

Owoh expressed doubt on the preparedness of the Executive to see that traditional January to December budget cycle happens, adding that the best solution to the budget crisis in Nigeria is to reset the budget year to January to December.

“Most importantly, the executive has a very poor accounting and record keeping culture. Most of these government agencies have not undertaken proper audits of their respective establishments to show how the funds they have received in the past were spent. This is one area where delays will arise,” he added.

A Research Analyst at ForexTime, Lukman Otunuga, said a sense of optimism is again around the Nigerian market and community of investors with the N8.612 trillion budget now in consideration.

According to him, as usual, the government is expected to develop infrastructure and boost investment in agriculture, which will ultimately grant Nigeria food security status, while reducing imports, but was concerned about pursuing the plans to logical point.

“It was interesting to see how the budget was based on a crude oil benchmark price of $45 per barrel, with oil production estimated at  2.3 million barrels a day. The government has shown its firm optimism over the recovery of the Naira, especially when considering how the exchange rate of N305 against the dollar was set for 2018.

“With the budget proposing oil revenues of N2.442 trillion and non-oil revenues of N4.165, international investors can see how Nigeria is truly embarking on its quest to diversify away from oil reliance,” he said.

New Challenges In 2018 Plan
For the 2018 budget expenditure put at N8.612 trillion, a 16 per cent increase over the 2017 figure, its retained revenue is N6.607 trillion, being 30 per cent above the 2017 estimates, but with a deficit of N2.005 trillion. The projected expenditure, though high in Naira terms, amounts to a paltry $28.24 billion and when divided by 180 million Nigerians, amounts to a per capita federal expenditure of N47,844.44.

A review of the 2018 budget proposal by CSJ, a Nigerian Knowledge Institution, showed that key issues remain unresolved and may put the document on another round of controversy, with Nigerians and the economy put on the line as usual.

That the Medium Term Expenditure Framework 2018-2020 (MTEF) has not been approved and as such, could not have been the basis for the preparation of the 2018 budget as required by Section 18 of the Fiscal Responsibility Act (FRA). The available MTEF is still a proposal that is subject to legislative alteration before approval

But Section 18 of the FRA Act states: “Notwithstanding anything to the contrary contained in this Act or any other law, the Medium-Term Expenditure Framework shall – (1) be the basis for the preparation of the estimates of revenue and expenditure required to be prepared and laid before the National Assembly under section 81 (1) of the Constitution. (2) The sectoral and compositional distribution of the estimates of expenditure referred to in subsection (1) of this section shall be consistent with the medium-term developmental priorities set out in the Medium-Term Expenditure Framework”.

The poor implementation of the capital component of the 2017 federal budget followed the trends in 2014, 2015 and 2016 financial years. Only N450 billion has been released in a capital vote of N2.174 trillion.

The released sum does not necessarily mean that the full sum has been cash-backed and even if cash-backed, could not have been fully utilised by the appropriate MDAs.

The poor performance of the revenue framework in 2017 also followed the trends in 2014, 2015 and 2016 financial years, as well as recurring deficit and dependence on sovereign debts to finance key infrastructure and budgetary provisions.

This is the result of the refusal to activate key domestic resource mobilisation mechanisms in the economy and build the fiscal architecture needed to harness the resources and energy of the people for development.

The 2018 deficit is put at N2.005 trillion and it is to be financed mainly by borrowing the sum of N1.699 trillion from external and domestic sources. The balance of the deficit in the sum of N306 billion would be financed from the proceeds of privatisation of some non-oil assets by the Bureau of Public Enterprises.

Of course, the proposed borrowing will further add to the already high debt profile, as the deficit is 23.27 per cent of the overall expenditure of N8.612 trillion and 30.35 per cent of the retained revenue.

“The first challenge of this Revenue Framework is on the expected revenue from oil. The projected oil production of 2.3 million barrels per day (mbpd) is unrealistic, considering the actual production in recent years and the 2017 half year figures of 1.9mbpd. What has changed that will shoot up production to 2.3mbpd in the next couple of months? There is no guarantee that this exemption by oil cartel will continue in 2018.

“Going by the performance of the 2017 Revenue Framework, which showed that nothing had come in from recoveries at the end of the second quarter of 2017, the sum of N512 billion projected from recoveries may be an expectancy, which may not materialise. Since it is an expected sum, it should not be made a revenue source and should only be appropriated when it has already been realised through a supplementary appropriation.

“Again, proceeds from the restructuring of government’s equity in joint ventures and other sundry incomes are not resources that have the certainty of realization. They may or may not be realized and FGN is not in control of the circumstances that will guarantee their realisation. As such, they should not be made a part of the foundation revenue framework of the federal budget.

“There is a very poor performance of independent revenue in 2017. The President in the Budget Speech indicated that only N155.14 billion has been remitted as at September 2017 out of a prorated expected sum of N605.87 billion, which represents a 74 per cent shortfall. So, upon what basis is the projection of N847.90 billion for 2018 based?” Onyekpere queried.

Capital Expenditure Shortfalls
THE first issue is that capital expenditure is to take 28 per cent of the budget and when capital expenditure in statutory transfers is included, it will come up to 30.8 per cent. as good as this may appear, it is on paper. Why? Previous experience, including the ongoing 2017 implementation (N450 billion has been released in a capital vote of N2.174 trillion), indicate that the capital vote is very poorly implemented.

Indeed, recurrent non-debt expenditure got N2.59 trillion in 2015 and moved up to N2.65 trillion in 2016; N2.99 trillion in 2017 and now a proposal for N3.494 trillion. These increments cannot be the sign of a system that is taking steps to remove waste and inefficiencies.

“It is not therefore, sufficient to make proposals, which may not be followed through at the end of the day. It is also imperative for the administration to ensure that the bulk of the capital expenditure is developmental, rather than administrative. This is the only way it can have a direct impact on the majority of citizens.

“The contradiction between government’s mantra of cutting down waste, improving efficiencies, removing ghost workers from the payroll and the rising recurrent non-debt expenditure is worrisome.

“The status of statutory transfers indicate that government again failed, refused and neglected to provide for the Basic Health Care Provision Fund, which is one per cent of the Consolidated Revenue Fund. This is clearly an act of bad faith, an illegality and outright contempt for the rule of law, constitutionalism and the rights to life and health of the poorest of the poor,” Fidelis Onyejegbu of Public Finance Management at CSJ, said.

Transparency Issues
Communications Lead at BudgIT, Abiola Afolabi, said the philosophy of the current government to spend big due to the relatively slow economic activities is welcome and clearly understood and as such, the capital expenditure allocation of N2.42 trillion is huge in nominal terms, when compared to previous budgets.

But he warned that given that almost all capital expenditure allocation will be financed primarily by debts, it is hoped that the line items in the budget will reflect such.

“Nigeria cannot continue to borrow to buy cars, computers, retrofit office buildings at the detriment of the critical mass needed to improve the economy and end the cycle of poverty. We hope the biggest proportion of capital allocation will go into improving infrastructure, expanding access to education and health, among others,” he said.

Afolabi noted that while a N6.6 trillion revenue projection is optimistic, the Federal Government’s non-oil revenue in the first six months of 2017 stood at N587 billion, and there is no significant facts to suggest the figure would double or triple in approaching the new fiscal year, hence the estimate might fail the budget soon.

He also welcomed the budget benchmark of $45 per barrel, but warned that there has to be excessive caution in keeping the peace of the Niger Delta, which is a crucial element in ensuring optimal production.

He said the overall budget proposal will need proper interrogation from all stakeholders, and analysis will be better when the line items are released to the public in a timely manner in line with the fiscal responsibility act that the president swore to uphold.

The Big Picture Is Missing!
The budget needs to be anchored on a robust and realistic economic, fiscal and developmental framework, which emphasises domestic resource mobilisation and popular capitalism, driven by the commitment of all members of society, where every ready and willing Nigeria partakes in the baking of the cake and as such, claims a right to be at the table in the sharing of the proceeds of national investments.

While the fear remains that of accountability, in this direction, a number of sectors can benefit from funds raised to support their development. A few examples can point in the direction of needed change and transformation:
• Universal health coverage will not be possible without a universal and compulsory health insurance scheme for its financing;
• Road sector financing can be improved through a Road Fund and Road Management Authority that will raise funds from a plethora of sources including toll gates, special surcharge on some commodities including fuel, etc. Special purpose vehicles to aggregate resources from institutional and retail investors will direct other resources into the sector;
• Reorganising railway development to remove it as a federal monopoly so as to bring in private sector investments especially from those already operating in the transport sector is missing from the projection radar. This will require an amendment of extant laws;
• The National Housing Fund needs to be reorganised to mobilise funds that will benefit contributors over the short, medium and long term. If the Fund had been well managed since inception during the Ibrahim Babaginda days, it could have garnered trillions of naira in its kitty;
• Opening the window of investments into the electricity sector especially in transmission and distribution is overdue. The current managers and operators of the DISCOs have neither the technical, managerial and financial capacity to move the sector to the next level whilst government has no resources to improve the transmission subsector; and
• Consideration, passage and assent to the Petroleum Industry and Governance Bill for reforms in the oil and gas sector; ultimately, these changes will relive the treasury of or reduce the undue burden of funding key infrastructure projects and as such, reduce the need for borrowing while the infrastructure still gets built. It will also reduce the demand for funds to pay back and service debts.

The National Assembly should approve the MTEF 2018-2020 before commencing work on the budget. NASS is expected to do a thorough vetting of the proposals before their approval and forwarding for presidential assent; speed up reform bills like the Petroleum Industry and Governance bill and other relevant bills.

NASS should also ensure that revenue projections are based on empirical evidence; approve any necessary borrowing plans on time (along with the budget), trim budget expenditure to be in harmony with realistic and realizable revenue projections.

The budget should be realistic, implementable and in harmony with available resources. Finally, NASS needs to restore the financial year back to the period January 1 to December 31 every year.