Weak estimates threaten proposed 2017 budget
Govt expects economic recovery in 12 months
As is the case with Nigeria’s income and expenditure plans in the past 18 years, hopes of economic recovery through President Muhammadu Buhari’s N7.3 trillion budget for 2017 may be a pipe dream after all.
Apart from oil price estimate of $42.5 per barrel, all four major benchmarks — oil production, exchange rate, inflation rate and Gross Domestic Product (GDP) growth rate — set in the President’s Budget presentation speech to the National Assembly remain uncertain. Economists yesterday argued that it would serve better for government to set its income and expenditure template closer to current prices and economic realities.
Wrong assumptions in the Appropriation Bill will undermine government’s priorities and plan for economic recovery and job creation in the coming year. “Without looking at how they want to spend the money, the assumptions on the revenue side are unreal,” Mr. Leo Ukpong, a professor of Economics at the University of Uyo, Akwa Ibom State, told The Guardian last night.
“On the spend side, if the revenue is low and you approve expenditure, you must go back to the capital market to close that gap and that will put pressure on interest rate. It will also make recession last longer that we thought,” said Mr. Ukpong.
Buhari’s expenditure plan as contained in the 2017 Appropriation Act, to be passed by the legislature, expects oil price to average $42.5 per barrel next year, just as the country projects an ambitious 2.2 million barrels/day oil production. The budget also sets exchange rate at $305/dollar. Although the National Bureau of Statistics (NBS) announced an 18.48 per cent rate of increase for consumer prices in November, government anchors the 2017 budget on a more stable average inflation rate of 12.92 per cent (well over five percent deceleration) in the new year. GDP growth rate, which has been on a negative trend in the last three-quarters, is put at a positive 2.5 per cent, meaning that government expects total recovery from recession in the next 12 months.
The current price of crude oil per barrel, as the Organisation of Petroleum Exporting Countries (OPEC) cut production to increase price, is $55 on the average. Although OPEC puts Nigeria’s daily oil output at 1.8 million barrels, actual production as admitted by government officials has been drastically reduced by militancy in the oil-rich Niger Delta region.
While the NBS put November inflation rate at 18.4 percent, economists believe that official numbers are rather far too conservative to reflect actual consumer prices, especially for food items. Dr. Bongo Adi, who teaches Economics at the Lagos Business School, said prices of bread and food items like rice show real inflation hovering above 100 percent. He anchors his argument on the fact that a 50-kilogramme bag of rice that was sold for less than N10,000 in December 2015 now sells for N23,000. Satchet water now sells for as much as N20 from N5 in some areas, representing a 300 percent increase in price.
“So, the 2017 budget benchmarks represent a back-of-the-envelope calculation,” Dr. Bongo tells The Guardian. “There is no rigour, no basis for the statistics being reeled out, especially when we are in recession (we are actually grappling with stagflation),” he explains.
“The budget’s oil price benchmark to my mind appears to be the only realistic estimate by the presidency,” Ukpong said by telephone Sunday night.
He said that OPEC set Nigeria’s daily oil production at 1.8 million barrels but could “not deal with the problem of militancy and pipe line vandalisation in the Niger Delta for us.” Ukpong also believes that an exchange rate benchmark of N305/dollar, though official, is not realistic enough to meet the country’s expenditure. “The exchange rate is almost N500/dollar in the real market. By benchmarking at N300, you are understating the cost of consumer goods by assuming that greater majority will not be part of the economy (and will not buy dollars).
“This will overshoot inflation rate; it will mean that the economy could get worse when the National Assembly approves the Bill and the Executive begins to implement it.”
A top media aide to Finance Minister Kemi Adeosun, in response to phone calls and three text messages — seeking clarifications on the ministry’s fiscal approach in ensuring the success of the 2017 budget — said the ministry was not in position to provide the answers. “Kindly get in touch with the Budget and National Planning Minister; they are in charge of Budget,” he said in a text message.
Minister of Budget and National Planning Udoma Udo Udoma was not available for comments. His media aide, Mr. James Ekpadem, did not also provide the needed answers in response to telephone calls and text messages on the matter. He said he was in a very crucial meeting with the Minister and would get back to The Guardian. He had not done so at press time.
The 2016 income and expenditure plan was said to have ‘failed’ because six key economic assumptions used in drawing up the budget fell short of anticipated results. Crude oil production was pegged at 2.2million barrels per day but production underperformed, oscillating between 1.5 and 1.9 million barrels per day due to unrest in the Niger Delta. This created wide differential between expected revenue and actual income.
The 2016 budget was also predicated on N197 to a dollar whereas the naira actually exchanged for more than N400 for the greater part of the fiscal year.
The third wrong assumption in the 2016 budget was the inflation rate put at 9.81 percent. This however accelerated to 18.48 percent (almost 100 percent more than the benchmark.
Price of crude was put at $38 but price volatility saw the commodity hitting $20 per barrel at some point before it rallied to the current price of above $50. 2016 GDP growth benchmark was 4.37 percent, only for the economy to slide into recession in the third quarter following persistent negative growth. GDP growth in the first quarter shrank by -0.36 percent followed by another negative growth of -2.6
Prof Pat Utomi told The Guardian that the phenomenon of failed budget estimates is not new in Nigeria. “It is a development that reflects poor planning and budgeting,’ he said.