The budget of hopes and dreams
It feels like déjà vu. At this point in 2015 the economy was already showing signs of serious problems. Growth had slowed from an average of about six percent in 2014 to just about two percent in the fourth quarter of 2015. The Naira was under pressure with the Central Bank taking the unwise decision to peg the currency at N199 per US Dollar even though it was already trading at around N250 per Dollar in the black market. The pressures in the forex market fed into the rest of the economy with price increases across the board looking likely. The pressures were perhaps epitomized by the government-controlled fuel markets where the then PMS price of N87 per litre looked increasingly unsustainable. Intermittent periods of aviation fuel scarcity, usually a precursor to PMS scarcity, were already prevalent.
Given the problems in the economy the Federal Government announced a record budget of N6.06tn, the largest budget in Nigeria’s history. The budget made very optimistic revenue targets of N3.86tn. VAT receipts were projected to double compared to the average for 2014 and 2015. Massive increases in CIT and customs revenue were also projected. All the revenue projections were dwarfed by a projected N1.5tn independent revenue. I still don’t know what independent revenue means but if you do please let me know. In short, the revenue projections looked like something crafted by someone who really believed in miracles.
The story did not end there. The budget proposed a record N2.2tn deficit to be financed partly from the domestic market and partly from foreign sources. There were plans of a Eurobond listing and borrowing for bilateral sources. The economists and errrconomists argued that the debt plans, especially from foreign sources would be unlikely given the price fixing in the foreign exchange market and the downstream oil industry. They also argued that the forex problems implied that the economy would not recover, which meant that the VAT and CIT doubling plans were unlikely to happen. The economists did not know what independent revenue was. Still we were hopeful.
We all know how 2016 turned out. The economy continued its collapse with the first recession in at least two decades confirmed. The hopeful revenue projections did not materialize. Oil output was hobbled by the militants in the Niger Delta. CIT, VAT, and customs duties were hobbled by an economy in recession. No one still knows what independent revenue is. On the deficit financing front, the plan to borrow from external sources failed completely. The Central Bank spent the first part of the year fixing the currency and the second part of the year lying to everyone that it wasn’t fixing the currency. All that meant whatever proposals Nigeria was selling, no one was buying. The proposed Eurobond listing is still missing in action. The plan to raise money from bilateral sources was mostly unsuccessful.
The failures on the revenue and deficit financing fronts meant that the Federal Government spent most of 2016 strapped for cash. So strapped that they tried to push all sorts of interesting ideas, such as the sale of national assets. In the end, it appears that they resorted to just taking cash from the Central Bank. A policy which has certainly played some part in rising inflation and effective interest rates.
So here we are in December 2016 and the scenario looks the same. The economy is still in recession. The foreign exchange market is still tactically fixed at N305 per dollar even though the naira is currently trading at around N485 per dollar on the black market. The currency problems are feeding into the economy with prices continuing to rise. The PMS pump price of N145 per litre is looking increasingly unsustainable with the traditional precursor to scarcity, aviation fuel shortage.
The budget proposal for 2017 also sounds familiar. The Federal Government announced another record budget of N7.298tn for 2017. The budget assumes levels of CIT, VAT, and customs duties similar to the 2016 budget. Recall that the 2016 budget assumed those would double and that failed to happen. The budget assumes independent revenue of N807.57bn, admittedly more realistic than the N1.5tn projected in 2016. Although we are still not sure what independent revenue is. Finally, the budget proposes another record deficit of N2.36tn, again to be financed partly from domestic markets and partly from external sources. The Eurobond plan that failed in 2016 has been pushed to 2017.
The 2016 budget looked overly optimistic and even though the signs for failure were there, we were hopeful that maybe the federal government could pull it off if they made the right decisions and got lucky. However, the 2017 budget is downright unimplementable. The revenue projections are unrealistic and the credibility problems at the Central Bank mean that no external source is going to look Nigeria’s way. The 2017 budget demonstrates that the Federal Government still has not learned from its errors in the past and have still refused to accept the reality that the Nigerian economy cannot feed it. As Albert Einstein once said; “The definition of insanity is doing the same thing over and over again and expecting different results.”
• Nonso Obikili is an economist currently roaming somewhere between Nigeria and South Africa and tweets @nonso2. The opinions expressed in this article are the author’s and do not reflect the views of his employers.