2018 budget: Lingering misguidance and reduced growth

A visibly fit President Muhammadu Buhari on November 7 delivered quite impressively the 2018 Budget Speech to the joint session of the National Assembly. He proposed estimated total revenue of N6.607 trillion and total expenditure of N8.612 trillion thereby putting the fiscal deficit at N2.005 trillion. The estimated revenue is 30 per cent higher than in the 2017 Budget and the planned capital expenditure is N2.652 trillion. Given prudent management, the fiscal deficit level of 1.77 per cent of GDP can be financed within available resources. However, Buhari proposes to sell public assets and procure external loans to finance the deficit for the purpose of undertaking infrastructural projects that, going by recent actions, would probably end up being sold off to mainly foreign private interests.

To dwell on the estimates and their breakdown among the MDAs in the abstract is to fall into the trap laid by wide-ranging corrupt interests to sow confusion and divert attention from the crying necessity to expose the mental slavery responsible for the country’s continued underdevelopment and the infliction of good-for-nothing budgets. Buhari’s 30-month-old administration has very poor budget implementation scorecard, but it tries to shift blame for the underperformance on delayed passage of the budget. In truth, however, by the affixed presidential signature to the Appropriation Bill passed by the legislature, the fiscal (budget) year runs “for a course of 12 months starting from the date it is assented into law” unless it is replaced before then by the duly passed and assented to fiscal budget of the year that follows. In other words, Buhari’s first or 2016 Budget ran from 6/5/16 to 5/5/17. Perhaps, in order to remove confusion, it should be styled 2016/17 federal budget. Similarly, the second or 2017/18 fiscal budget was assented to and therefore commenced on 12/6/17. Thus the 2017/18 federal budget still had eight months to run as at 7/11/17 when what should be properly called 2018/19 federal budget proposals were presented to NASS. Because the first and second budgets took six and seven months respectively to be passed after their presentation to NASS, any expectation that the latest proposals will be considered, passed and assented to by December 31, 2017 will become one of the wonders in the present democratic dispensation. Going forward, the Buhari administration should wake up to the general public acceptance that budget proposals should be laid before NASS at the latest by the first day of August preceding the reference calendar year in order to facilitate budget passage on time for the country to operate a January-December budget implementation cycle.

Accordingly, the Ministry of Budget and National Planning should align relevant sections of the 2018-20 MTEF/FSP and the 2017 Second Quarter and Midyear Budget Implementation Report (BIR) with the appropriate fiscal year and come up with BIR ending September 30 as the first quarterly report on the 2017/18 budget. Also, Buhari should faithfully implement that budget while the legislature considers the 2018/19 budget proposals. Still on budget implementation, the claim in August by the Veep that the administration “spent N1.3 trillion on capital projects in 2016, the highest in a single budget cycle in the history of the country” also received mention in the MTEF/FSP and the 2018 Budget Speech without any proof despite the demand by several members of the House of Representatives in August for evidence. It will be helpful for any BIR concerning capital projects’ performance to reflect the specific physical projects, completion levels achieved, costs incurred and other relevant details. Meanwhile, government should provide the breakdown of its vague capital expenditure in 2016. And importantly, consistent with the brimful TSA, anachronistic release of funds for projects yet to be implemented should give way to a system of signalling affected MDAs to earnestly execute projects with requisite funding. Only the execution of capital project up to a preset instalmental/final completion stage should prompt actual release of funds from the TSA directly to (beneficiary) contractor in a single, well coordinated and seamless operation with any delay in settlement attracting compensatory sanctions.

The above BIR indicated that prorated government revenue outturn for the various revenue sources tended to fall far behind approved estimates with gaps ranging from 40 to 80 per cent. The bloated 2018 estimates are likely to face such outturns. Perhaps such huge gaps were (are) intended to provide excuse to embark on borrowing binge. Notwithstanding the principle of the paradox of thrift, the wayward projections are a mark of unrealistic budgeting/planning. They cannot be consistent with the zero-budgeting mantra. The welcome abolition of the excess crude account would temper shortfall in oil receipts.

In paragraph 54 of the budget speech, Buhari betrayed a lack of understanding of the economic situation when he proposed to sustain the past two years of reflationary policies. The technical phrase, reflationary policies, deceptively mimicked the language of combating traditional economic recession elsewhere whereas Nigeria’s recent recession was predated and compounded and outlived by inbuilt overdose of reflation arising from the application of faulty fiscal/monetary procedures since the 1970s. That explains why, contrary to the practice in traditional economic recession, the CBN before the eyes of all residents in Nigeria not only constantly mopped excess liquidity even in the depths of the recent recession but also retained in place permanent contractionary (that is, non-reflationary) monetary policy stance depicted by rising and double digit monetary policy rates. These are ineffectual deflationary (disinflationary) tools in the Nigerian situation.

It personifies mental slavery when such contradictions pervade an economy where best practice solution is spurned. Nigeria has long endured the uniquely old inbuilt excessive reflation, which has been exacting a hefty price. Take just three instances: one, the World Bank/IMF, through absolute misguidance, instigated sterilisation of mopped excess liquidity for accumulation and restructuring into national domestic debt which (at paragraph 63 of the budget speech) accounts for 79 per cent of total national debt. There is need to reassess this so-called national domestic debt. In banking sector parlance of creation and destruction of money, excess liquidity funds are nuisance destined for destruction at negligible 0.1 per cent or less nominal cost to the apex bank. In economic teaching, excess liquidity neither transmutes into national domestic debt, which least of all attracts 13-17 per cent interest charge, nor transforms to external debt upon being traded at the international capital market at ruling rates. The NASS should therefore assert the country’s independence by repudiating the non-conventional and oddly Nigeria-specific domestic debt sired by the perfidious World Bank/IMF just as its contemporaneous sibling of excess crude account was abolished by the Senate. In short, there is no genuine domestic debt, talk less to restructure it. In the national interest, the NASS should appropriate any realised revenue earmarked for redeeming and servicing the fake national domestic debt for the financing of capital projects. Additionally, the legislature should institute cumulation of a genuine national domestic debt as explained in this newspaper’s editorial of 23/10/17.

Two, the regime of high monetary policy rates dictates unattractive lending rates that discourage borrowing by the private sector. It is falsehood to hold that government borrowing crowds the private sector out of domestic credit. In reality, depositors’ funds in the banks even under very robust prudential ratios can support over N70 trillion domestic financing by banks, but over 70 per cent of the lending capacity remains unutilised no thanks to uncompetitive lending rates.

Three, in addition to the failed economic plans, programmes, strategies and budgets since the abandoned Third National Development Plan (1975-80), the apex bank’s contractionary monetary policy stance is set to number the Economic Growth and Recovery Plan among its victims. Barely four months after it was launched, the ERGP’s initial unimpressive growth rates of 2.19 per cent for 2017 and 4.8 per cent for 2018 have been reduced to 1.5 per cent and 3.5 per cent respectively in the 2018-20 MTEF/FSP “in view of current realities.” In spite of the bloated 2018 estimates and the grandstand presentation, the public should expect a lower (if uncooked) growth rate. Nigeria can achieve double digit growth rates on condition that the ample resources are properly managed. But flummoxed by the sinking grandiose claims, the Buhari administration (it has soft spot for all-things-foreign) has run to Malaysia to hire economic consultants, who are expected to prop up the economy. What a shame!

While refusing to implement policy measures that would guarantee conducive economic environment, the administration covets low lending rates for government external loans: It craves after broad-based and inclusive growth while it futilely longs for double digit growth which it concedes the economy desires; it hankers for ample tax revenue; it boasts stable exchange rate, a claim belied by the multiplicity of exchange rates; it is bent on selling off existing public assets in order to finance its deficits; it combs properly managed economies for dollar loans in order to build infrastructural assets that would be ill-managed and subsequently sold off; it accumulates false domestic debt for sale to international loan sharks in order to raise dollar funds for the CBN to pour down the drain and enrich currency speculators through segmented forex markets; it proposes to foot counterpart funding amounting to 94 per cent of the cost of the Manbilla hydropower project and its associated transmission lines and substations, etc. How will the bungled economy repay the loans? Yet it has been shown time and again that proper management of available resources will actually yield budget surpluses.

The way out is to implement at no cost to the treasury best practice fiscal/monetary methods that are consistent with the mandates of the 1999 Constitution, the CBN Act 2007 and the yearly Appropriation Act. Through longstanding serial breach with impunity of the statutory prescriptions, successive Federal Governments have been subjecting Nigerians to excruciating economic pain. Enough is enough.