A budget of many spurious assumptions
Increasingly, Nigeria’s yearly appropriations are gaining more weight. The 2021 estimate President Muhammadu Buhari presented to the National Assembly last week is more than twice his first budget in office as a democratic leader.
On its nominal value, the N13.08 trillion ‘budget of economic recovery and resilience’ is also 21 percent higher than this year’s revised figures. It is also higher than the N8.9 trillion budgeted for 2019 by a margin of 47 percent.
The president could not have been more apt in his choice of a theme for the appropriation considering that Nigeria, like other countries, is just dusting off the ruins of the Coronavirus Disease 2019 (COVID-19) pandemic. He was equally sincere enough to have admitted that the economy may “lapse into the second recession” in four years of its life.
On its face value, the total allocation, which is about 13 percent of last year’s gross domestic product (GDP), looks good. Allocations to critical infrastructures are also up, in some cases, by a reasonable percentage.
Those who have taken the figures on their face value have described the appropriation as ambitious. But when stretched beyond nominal assessment, the entire budget appears to make a mockery of the government’s pledge to get the economy out of the woods. That the N13.08 trillion is much higher than the previous ones is how they limit the argument can go.
In dollar terms – this is important for two reasons: the majority of the country’s infrastructural project costs are dollarized just as the dollar benchmarking is a global trend – the 2021 appropriation translates to only $34.5 billion. And considering the new N379/$1 on which the budget is anchored, the estimate is only 5.8 percent (or $0.6 billion) higher than the $33.9 billion initially budgeted for 2020.
Deflated with the country’s current 13.22 inflation rate, the budget is as good as the number of goods and services N11.38 trillion could buy this time last year, implying that its value in the real term is only $1.03 trillion or 10 percent higher than the N10.33 trillion initially budgeted for 2020.
The double whamming – naira depreciation and inflation (which has remained consistently above 10 percent in the past five years) – have eaten deep into the real value of the 2021 appropriation like every other previous ones, leaving in its wake mere statistics for unwary minds to celebrate. The impact of the exchange rate alone has almost wiped the deferential between the N13.08 trillion appropriated for next year and the 2016’s N6.06 trillion budget.
Whatever remains of the difference between the two figures would have been cleared by the compounding effect of inflation, showing that Nigerians who have hailed the expanded figures as improvement could be caught up in the money illusion dilemma.
Perhaps, the situation is worse when you consider the fact that the real Nigerians’ budget is the capital votes. The recurrent expenditure, though it has some multiplier effect on the entire economy especially when you consider the near 100 percent nature of the country’s marginal propensity to consumer (MPC), contributes little to economic growth. Subject the capital votes for works and housing, education, defence, power, transportation and other key sectors – to the same currency value and inflation impact analysis, and you will be left with a bitter memory of the historical futility of the ritual termed annual budgets.
The biggest elephant in the house – works and housing – is given $1.06 billion while power gets $522.4 million. In 2016, when the three key infrastructure areas were merged in a single ministry administered by Babatunde Fashola, their combined budget was $2.3 billion or 44 percent higher than what it is currently allocated.
What has changed between 2016 and now? Have the potholes on the federal roads been filled? Has the power challenge been solved? Has the 17 million housing deficit been plugged? Or is the government growing in its nonchalance towards the homeless?
On a per-capita basis, the Federal Government will spend $8 (N3, 032) on the housing, power and road infrastructure needs of a citizen in a country rated among nations with the worst public utilities. That comes down to less than one dollar a month.
A similar thing goes for other areas. Health, with all the talks about how deprived Nigerians have been, is not exempted. Minus personnel cost and other overhead, the government will be spending a total of N660 on the health needs of each of the country’s 200 million citizens.
In the face of rising banditry and terrorism in different parts of the country, the starved National Defence Headquarters will be handed only $319.7 million to beef up the national armoury and procure related soft infrastructure, all things being equal. Education, with all its inadequacies, is given a capital vote of about $519 million. The amount, which includes the allocation to the extremely important Universal Basic Education (UBE), is less than two percent of Harvard’s endowment fund.
These go without saying that the estimates would yet be adjusted to accommodate the cost of corruption, which is a major component of Nigeria’s public financing. The intensity of the impact of corruption is a measure of the average propensity to steal of an average contractor, politician or supervising civil servant as well as the level of permissiveness in the system.
Prof. Godwin Idoro of the Department of Building, University of Lagos, once noted that Nigeria has the highest construction cost in the world. Like others, including international organisations, have observed, the don linked the cost of project execution to corruption and political patronage.
“Government agencies have devised a new strategy of compensating members of their Board of Directors, Governing Councils, politicians/legislators and top civil servants by allocating a number of the projects in their capital budgets to them.
“These people, in turn, sell the contracts to the highest bidders. Studies have established that construction cost in Nigeria is the highest when compared to other countries. A situation where the cost of public-financed projects is higher than a similar Public-Private-Partnership (PPP) project is beyond comprehension.” Idoro explained during a lecture.
Pairwise, Nigeria’s appropriation falls short of what its contemporaries are doing. The total outlay, with key capital allocations, pales into insignificance when compared with the budget of South Africa or Egypt. These are not random samples – Nigeria is the biggest economy in Africa, followed by South Africa, then Egypt.
In July, the Egyptian President, Abdel Fatah Al-Sisi, ratified the country’s 2020/2021 fiscal year’s budget, amounting to 2.297 trillion Egyptian pounds or $147.2 billion (N56 trillion). The figure is 428 percent the size of Nigeria’s estimate for the same year. Egypt’s population is smaller than that of Nigeria just as its infrastructural deficit is moderate compared to Nigeria’s huge need, which the government itself said would require N36 trillion annually spending for the next 30 years to solve.
Egyptian per-capita budget, unlike Nigeria’s pantry N65, 400, is N554, 000. Nigeria’s per capita budget is 11.8 percent of that of Egypt, a country that competes with Europe in terms of quality and quality of public infrastructure.
Also, the 2020/2021 financial budget of South Africa, Nigeria’s key regional rival with a population of 59 million, is $118.9 billion. The figure is about 3.5 times bigger Nigeria’s proposed budget. This means it will take Nigeria three and a half years of spending at the current capacity to reach what an equally-depressed South Africa will use next year to get its recessed economy on its feet.
The former apartheid nation was affected by COVID-19, hence it’s choice to increase the 2019/2020 health budget allocation by three percent, hitting R229.7 billion (an equivalent of about $14 billion) in 2020/2021. This is about 40 times what the Federal Government is planning to invest in health.
The deceit of the size of outlay notwithstanding, the devil is in the revenue mobilsation assumptions. Deficit constitutes an equivalent of 40 percent (N5.20 trillion) of the proposal. “The deficit will be financed mainly by new borrowings totaling N4.28 trillion, N205.15 billion from Privatization Proceeds and N709.69 billion in drawdowns on multilateral and bilateral loans secured for specific projects and programme,” Buhari explained.
As of June 30, the total debt stock of the country was N31.08 trillion, translating to 240 percent of the appropriation. The planned borrowing will add to the existing debts, which experts said is becoming unsustainable, leaving the lawmakers with the option of supporting the executive’s continual craving for easy money through “fresh borrowings” or call it off as they debate the appropriation in the coming weeks.
If the government chooses to borrow notwithstanding the mounting obligations, the discussion moves to the second phase – can the liquidity-starved market soak up a fresh N4.28 trillion borrowing need of the country? Experts have warned against external debt as currency volatility poses a major risk to the ability to pay. They urged the government to look inward.
Sheriffdeen Tella, a professor of economics, advanced the discussion further. He suggested calling up illicit money and resources buried in “septic tanks” for a productive use through a bond sale. The suggestion raises a moral question on how a government that lays claim to zero-tolerance for graft would target questionable resources with a bond sale.
If the government chooses to carry on with its unrestrained domestic borrowing, it will continue to crowd out the private sector, which is the engine of every economy. So, there are no easy choices for the government as it seeks to borrow more to fill the hole in the new appropriation.
The oil price benchmark is yet another contradictory assumption. For once, the government assumes that crude prices will remain constant or increase, hence it benchmarked it on the prevailing price, a decision Bala Zaka, an energy economist, described as ridiculous.
“I think it is more realistic to assume a price that is $8 less than the current price. Oil is about $40 per barrel. Why should anybody assume that the price remains at the same level next year? That benchmark is not a safe one,” Zaka insisted.
But the price is just one of the troubles of the crude export revenue assumptions. OPEC quota to Nigeria has hovered around 1.4 million barrels per day in recent months, yet the President chose to pick a figure outside the OPEC range – 1.86 million barrels per day.
Yes, countries have habitually blatantly dismissed OPEC quota and oversupply the commodities. But that has always resulted in price war Nigeria, owing to its extremely high oil production cost, does have the wherewithal like Saudi Arabia, Russia and the United Arab Emirates to fight. The Group Managing Director of the Nigerian National Petroleum Corporation, Mele Kyari, who has been championing a cause to crash crude production cost to $10 per barrel, revealed that some oil companies spend as much as $30 producing the same barrel countries like Saudi Arabia draw out at less than $5.
“Even the production benchmark is also not in line with international market reality. It is the Organisation of the Petroleum Exporting Countries (OPEC) that fixes production quota, not individual countries. Why should your planning benchmark exceed the quota you currently get?” Zaka questioned.
Part of the deficit will be funded by “proceeds of privatisattion”. While there have random statements on the government’s intention to sell some of its assets, no negotiation has reached the stage yet. And if the President is counting on the National Assembly to speedily pass the bill so that implementation can commence on January 1, 2021, one can only wonder the asset the government intends to cash out for next year’s spending.
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