Economic recovery: Implement 2021 budget correctly – Part 2

Now, for Nigeria to attain the seventh-largest rank, the present population size is an asset. The world’s seventh most populous country is Nigeria. Her 2020 projected population of 208 million (Wikipedia) equals the combined 2020 population of Germany (83 million), France (66 million), and Italy (59 million).

In 2019, Nigeria ranked as 27th world’s’ largest economy based on nominal GDP while the above named European Union countries ranked as fourth, seventh, and ninth-largest economies in the world respectively. Also note the following economic features for subsequent comparison. (a) The external reverses of the three EU countries are not based solely on their respective government’s forex receipts from exclusively government-owned export commodities/services. In accord with global best practice, the foreign reserves reflect the net balance of earnings from foreign trade by various economic agents in each country. (b) The European Central Bank (ECB) defines price stability as inflation below, but close to 2 per cent. (c) Bank lending rate in the EU averaged 3.87 per cent from 2000 to 2020 ranging from 1.42 per cent in May 2020 to 6.52 per cent in October 2008 (Google).

The FG has explained ad nauseam that the COVID -19 pandemic (which hit the country at the tail end of the first quarter of 2020) gave rise to output volume cut and low crude oil prices and economic recession.  

Nonetheless, in the proposed 2021 Budget, the oil revenue to non-oil revenue ratio is 57:43, which follows the same pattern of federal budgets on paper since 1975 wherein oil revenue has accounted for over 50 per cent of the budgets annually. Interestingly, crude oil export volumes since the 1970s have averaged probably a little less than 2 million barrels per day while fluctuations in crude oil prices are normal. As a result, and no thanks to incorrect implementation of the budgets down the years, the federal budgets have been invariably underfunded with many socio-economic needs not being provided for despite resort to huge domestic and external loans to supplement government revenue.

In spite of its grand title, the Economic Recovery and Growth Plan 2017-2020, as earlier implied, will end up in December recording GDP growth rates which consistently have fallen short of the planned rates and lagged behind the population growth rate, The eponymous 2021 Budget, under heterodox business-as-usual implementation, cannot deliver GDP at the projected growth rate of 3 per cent, However, what should be the correct focus of FG during budget implementation process may be gleaned by examining the latest NBS full- year and COVID-19 pandemic-free data on the contributions of the various economic activity sectors to 2019 GDP (at 2010 constant prices), that is, Government or Public Administration (2.06 per cent), Oil sector (8.78 per cent), and Non-oil (excluding Government) sectors (89.16 per cent). Correct implementation of the budget would lead to even more than proportionate contribution and revenue generation by the Non-oil (excluding government) sectors.

While it does not exercise full control over crude oil revenue, the FG possesses exclusive sovereign responsibility for monetary and currency issues. The inherent advantage in properly managing the national currency or the naira exchange rate is to transform the role of Federation Account oil receipts into the country’s self-generated foreign direct investment and external loans without cause for FG to mortgage the sovereignty of the country to (foreign) multilateral and bilateral lenders. Therefore, FG’s most critical budgetary duty is to implement fiscal and monetary measures in strict compliance with the Central Bank Act 2007, the Fiscal Responsibility Act 2007, and the annual Appropriation Act. That course of action will guarantee stable prices and stable exchange rate and production-friendly low-lending rates (4-6 per cent lending rate that is positive in real terms will prevail).

In such a conducive production environment, the Non-Oil Private Sector (inclusive of the Oil Sector’s forward and backward linkage enterprises) will operate on a level playing field which is secured against ruinous foreign competition by appropriate tariffs and forex access tax. Businesses will then access cheap and ample bank credit for profitable investments in the various economic sectors including infrastructure projects. That outcome would redound positively on employment, produce non-oil tax revenue volume that will facilitate multiple increases in the size of the current federal budget, give rise to double-digit GDP growth rates and eliminate extreme poverty within a short period of time. Additionally, given such flow of humongous revenue to the federal kitty, the Federation Account revenue sharing formula could be adjusted to accommodate the much yearned- for resource control and/or restructured federation `with the FG well-heeled to cater for the needs of the tertiary education and health sectors.

In the 60th Independence Anniversary address, Buhari tacitly attributed the challenges facing the country partly to flouting of the rule of law when he said, “…we must focus our minds, TOGETHER as a people, on ways of resolving the identified critical challenges that underlie our present state by (among other ways) supporting the enthronement of the rule of law, demanding accountability of elected representatives and contributing to good governance.” Rule of law has been defined simply as “the principle that all people and institutions are subject to and accountable to law that is fairly applied and enforced; the principle of government by law.”

As with past budgets, there are fundamental inconsistencies in the 2021 Budget which run afoul of not only the guiding or existing fiscal and monetary laws but also economic principles. For the sake of professional integrity, the NES should either educate the wilful mismanagers of the economy to the disadvantage of the generality of the people about the following economic truths or openly and scientifically/empirically disprove them in The Guardian for public enlightenment. One, the 2021 Budget, in breach of the Fiscal Responsibility Act (FRA) envisages a fiscal deficit of 3.64 per cent of GDP. That implies a 2021 inflation expectation of 3.64 per cent because the actual fiscal deficit level incurred by the government equates with the NBS inflation estimate. But at the same time, the budget anticipates “inflation closing at 11.95 per cent,” which contradicts the inflation expectation figure.

To be continued tomorrow.