2018 budget: Matters arising
The widespread chants about delayed passage of the 2018 Budget were partly uninformed and partly orchestrated to shift blame for poor performance by MDAs. The commencement date of the 2018 Budget is the termination of the 2017 Appropriation Act. It is stated therein thus, “In line with the provisions of Section 318 of the Constitution of the Federal Republic of Nigeria of 1999 as amended, (the 2017 Appropriation Act) will run for a course of 12 months starting from the date it is assented into law” (which was 12th June 2017).
On the 7th of November 2017, President Muhammadu Buhari presented the 2018 Budget of Consolidation to the National Assembly. He said, “We have worked very hard to achieve an earlier submission of the Medium-term Expenditure Framework and Fiscal Strategy Paper and the 2018 Appropriation Bill. Our efforts were to avail the National Assembly with sufficient time to perform its important duty of passing the Appropriation Bill into law, hopefully by 1st of January 2018…in our efforts to return to a more predictable budget cycle that runs from January to December.” Hence Buhari gave the federal legislature 54 days (in his words) “to swiftly consider and pass the 2018 Appropriation Bill.”
Yet, even by charitably overlooking the fact that the purpose of the ruling party for seeking power (which should inform the content of the budget) took shape far back in time, Buhari (as head of the executive arm) in 2017 literally spent 10 months and six days to prepare the 2018 budget. As it turned out, NASS transmitted the passed 2018 Budget to the President on 25th May 2018 thereby giving Mr. President 18 days within which to give his assent in order for the 2018 Appropriation Act to set forth, beginning on 12/6/18, on another 12-month journey. In the present case, NASS took six months and 18 days to consider, pass and transmit the 2018 Appropriation Bill (ignore the proffered reasons why) to the President. Thus for the much hoped-for January-December budget cycle to commence on 1st January 2019. Buhari should deliver the 2019 Budget Speech to NASS in June 2018. Note that the administration has put in place the 2017-20 ERGP, which is meant to be sub-packaged in annual budget proposals that are essentially projections (tied to the ERGP). When necessary, a specific project/programme-focused supplementary budget may be submitted to NASS for approval from time to time. So a schedule for presenting the 2019 Budget Speech this June is not chimerical.
For the sake of completeness, the budgeting schedule also accommodates a possible scenario where the President withholds assent to the passed Appropriation Bill owing to dissatisfaction with specific items contained therein. But government business could proceed for up to six months till, in the instant case, 12/12/18 subject to constitutionally stipulated funding level based on the 2017 Appropriation Act. Within that period, the executive and legislature arms may resolve any particular sticky points with a mutually agreed version of the Appropriation Bill receiving presidential assent at any intervening date as the beginning of the negotiated Appropriated Act. Notwithstanding the fact that there would be a subsisting or extended budget at any point in time (which prevents government business from grinding to a halt), where the administration is preoccupied with instigating attritive muscle-flexing among the arms of government with a view to shifting blame for its lacklustre performance as has hitherto characterised the Buhari team, the executive and legislative arms have infinite capacity to move the takeoff date of the budget at the expense of general normality and economic progress. Nineteen years into the democratic dispensation, there is need to have by force of law or convention fixed budget presentation and takeoff dates. That way, even a fresh administration, having been elected in March, could present its first budget on the day following the convocation of the succeeding NASS (which usually occurs early in June) for consideration, passage and assent by December and so facilitate its prompt takeoff on the following 1st January. Government is serious business and up-and-running administration should not be manned by sloths.
Now, the passed 2018 Appropriation Bill raised total budget expenditure by 5.9 per cent to N9.12 trillion from N8.612 trillion initially proposed. There were upward changes to the capital and recurrent expenditures. The crude oil benchmark price was fixed at $50.50 per barrel up 12 per cent from the initial price of $45 per barrel. Significantly, the naira exchange rate was retained at the 2017 Budget level of N305/$1.
The upward oil price review has the prospect of merely reducing the fiscal deficit and the level of external loans. To decide to save oil receipts accruing from the higher prices betrays a lack of desire to implement the ERGP as fast as resources permit. However, by canvassing saving of the increases in oil receipts, the CBN on its part is not just working against steadfast realisation of the ERGP but deceptively attempting to cover up its ruinous practices. How? Through the apex bank’s faulty procedures, any increased FAAC dollar allocations (accruing from rising oil prices) would be withheld and substituted with CBN funds thereby exacerbating the deficit and inflation levels which in turn would necessitate raising the monetary policy rate (MPR) that is already too high for investors to access bank credit to initiate or grow their businesses and boost economic productivity.
This glaring improper handling of FAAC dollar disbursements is at the heart of the persistent economic underperformance: it should be corrected as precondition for the country to make any meaningful economic progress. To that end, the fiscal and monetary authorities should realise that the naira exchange rate fixed by the yearly Appropriation Act (AAR) is applicable to the country’s total export earnings (as broadly defined economically) and not just to public sector oil proceeds. The Appropriation and CBN Acts compel the apex bank to float the naira (as the essential ingredient for budget implementation) within a stability band centred on the explicitly indicated naira exchange rate (that is, AAR+/-3 per cent). Therefore, having assented to the 2017 Appropriation Act, Buhari self-indictingly committed the dereliction of duty for ensuring unwavering compliance with the law only to mislead the Nigerian people by stating, for example, at paragraph 17 of the 2018 Budget Speech, that “stability has been restored to the exchange rate market” while in reality there exist multiple segment exchange rates with over 70 per cent of forex transactions in 2017 (according to IMF staff report in 2018 Article IV Consultation) falling outside the AAR+/-3 per cent stability band. For the avoidance of doubt, it means while Mr. President watched, the CBN operated and still operates unilaterally fixed and grossly devalued naira exchange rates. That explains Mr. President’s mistaken claims, one (at paragraph 54) of pursuing reflation of the economy whereas the CBN has been implementing contractionary policy measures for many years running with extremely high MPR; and two (at paragraph 59) that under the 2018 Budget the expected fiscal deficit level would be 1.77 per cent of GDP and the target inflation rate would be 12.4 per cent as indicated at paragraph 54 whereas such levels of fiscal deficit and inflation are mutually exclusive. The ingrained mishandling of the naira exchange rate is responsible for several other inconsistencies in the budget speech.
Barring the deliberate long-drawn-out mismanagement of the naira exchange rate. Nigeria’s economy is among the easiest economies to manage successfully in the world. Simply abide by the national constitution. Enforce faithful implementation of the Appropriation and CBN Acts. Embrace international economic best practice methods. The economy then achieves liftoff and whooshes into a very high inclusive growth orbit on the power of its ample resources.
No Comments yet