The 2020 budget and poverty-inducing execution
The state of the economy is, with due lag time, the outcome of the fiscal and monetary policies being implemented. Budget implementation results could run contrary to the explicitly stated intentions proposed in budget documents. The national budget objectives over the years have been to build a prosperous economy. President Muhammadu Buhari reiterated that point in the 2020 budget speech wherein he said, “We remain absolutely committed to the actualisation of our vision of a bright and prosperous future for all Nigerians.” However, the cumulative budget outcome, in terms of the incidence of poverty indicator, rose from about 35 per cent in the mid-1970s to 72.0 per cent in 2012 as contained in the Central Bank of Nigeria (CBN) Annual Economic Report for 2013.
But shying away from the established size of the incidence of poverty, the Buhari administration decided to peg the incidence of poverty at 50 per cent. It agrees that the poverty level constitutes, “the underlying causes, drivers and consequences of humanitarian crises and underdevelopment”. In the 2020 budget speech, the responsibility for tackling the economic problem was assigned to the newly created Ministry of Humanitarian Affairs, Disaster Management and Social Development (MHADMSD) with a view “to ensuring the equitable sharing of economic prosperity.”
While defending the ministry’s takeoff budget before the House of Representative Committee on Women Affairs and Social Development, the pioneer Minister Sadiya Farouq described the assignment as that of uplifting nearly half (90 million) of the country’s 198 million population, who live in extreme poverty, reducing the relatively high unemployment currently at 23.2 per cent and cutting down the high number of persons of concern and so on. The minister presented a total recurrent and capital 2020 budget of N3.58 billion. Elsewhere the “breakdown of the 2020 Executive Budget Proposals” contained additional capital budget of N54.45 billion.
Let us use a little arithmetic to again illustrate the begging option before the Federal Government. One, the 2020 budget envisions real GDP growth rate of 2.93 per cent. In the event the realised growth rate matches the population growth rate, GDP per capita will be unchanged from the preceding year’s level just as GDP distribution may be assumed to be unchanged. Full year NBS 2018 GDP at current market prices divided by the official population of 198 million averages N1, 787 per person per day. The distribution of GDP is highly skewed (inequitable in the parlance of the 2020 budget) with 90 million people officially earning (generating) less than N488.00 (US$1.60) per person per day. (The UN benchmark income for people living in extreme poverty is US$1.60 a day.)
Two, suppose the combined MHADMSD budget of N58.0 billion is fully funded. Also, given the administration’s track record of distributing money under the social investment programme, assume that the ministry’s entire budget is shared among the 90 million people as a means to lift them from extreme poverty. That gives a daily average of N1.77 as the addition to their inequitable share of below N488.00 per head per day of GDP noted earlier. Note that where the GDP growth lags behind the population growth rate (as has been the case in recent years) the ranks of people living in extreme poverty would aswell further. So in reality, under the 2020 budget, the MHADMSD would be sharing abject economic misery rather than the intended equitable sharing of economic prosperity. On the other hand, three, when GDP growth tops population growth rate, every percentage point gain would raise GDP per head per day by N18.00. That result establishes the fact that the right option to lift millions of people from poverty is by promoting rapid GDP growth. There are well known effective taxation methods for both boosting government revenue and ensuring equitable sharing of economic prosperity in a fast growing economy.
Now, to achieve GDP growth at several times the proposed 2.93 per cent GDP growth rate calls for the elimination of the discrepancy between paragraph 51 of the 2020 budget speech (which projects fiscal deficit of 1.52 per cent of GDP) and the current double digit inflation rate that is presumed in the “Breakdown of the 2020 Executive Budget Proposals.” At the second Nigeria-Canada Investment Summit on November 4, 2019, the CBN governor corroboratively said, “Though we do not expect a single digit (inflation) outcome by end-2019… it would traverse towards the bank’s 6-9 per cent (inflation) tolerance range by 2020.” The CBN’s position is fallacious.
As a matter of correction and for the sake of general education, the fiscal deficit level set in the Appropriation Act denotes the inflation expectation in the relevant fiscal year. Broadly, the fiscal deficit ceiling of three per cent of GDP contained in the Fiscal Responsibility Act (which informs the level set in the Appropriation Act) prescribes for the apex bank 0-3% inflation range as the price stability range (PSR) in the context of Section 2(a) of the CBN Act 2007. The PSR provides the basis for fixing various stable (monetary) interest rates that are internationally competitive.
Competitive lending rates enable the productive sector to access cheap bank credit to rapidly grow the economy. Note that the 0-3% inflation range accommodates occurrences of balanced budget or surplus budget, either of which produces near zero inflation. Because low inflation (price stability) is a precondition for economic prosperity, under Section 38 of its enabling law, the CBN may only grant limited temporary ways and means advances to the Federal Government, but such advances should be repaid within the same fiscal year. To avoid the circuitous method, the country’s public and private sector forex earnings must be transacted in a single forex market operated through the deposit money banks.
Therefore, both the apex bank’s 6-9% inflation tolerance range (it has even proved elusive) and the prevailing double digit inflation are aberrations caused by the fiscal and monetary authorities. The CBN wrongfully kowtows to the political leadership and at the behest of the latter, it withholds Federation Account dollar allocations and then substitutes ways and means advances, which are permanently unrepaid. As a result of that breach of the CBN Act, government from year to year incurs actual (combined) fiscal deficit in excess of the set safety ceiling of three per cent of GDP thereby overshooting the stable 0-3% inflation range. As has been witnessed over the years, the high inflation leads to high monetary policy rate and restrictive monetary stance, which impedes the oft-stated budget objective of promoting national economic prosperity.
It is the responsibility of the President (and Mr President has sworn) to uphold the laws of the land rather than distort them. In light of torrents of constructive public comments on the economy, the President cannot be unaware of the fact that his forbearance and abstaining from enforcing the correct implementation of the existing fiscal and monetary laws during budget implementation have rendered the yearly federal budget contractionary and poverty-inducing.
In the circumstances, it amounts to hoodwinking the Nigerian people to set up the MHADMSD for the purpose of sharing economic prosperity when rising extreme poverty is manifest. On his part, the CBN governor mockingly restated at the earlier noted Nigeria-Canada Summit that the fiscal and monetary authorities would work closely to target a double digit GDP growth rate by the next five years presumably after the incumbent President and CBN governor have left office. There is no doubt that Nigeria, given the present GDP level, can achieve double digit GDP growth rate within a short time. To that end, the Buhari administration should embrace fiscal and monetary reforms now.
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