2018 Budget: Deficit And Debts

The 2018 federal budget is tagged a “Budget of consolidation”. The name appears to be a response to the fact that Nigeria had just exited economic recession and there is the need to consolidate on the recovery and spur economic growth to previously attained levels.  The proposed expenditure is in the sum of N8.612tn which is a 16 per cent increase over the 2017 figure whilst the retained revenue is N6.607tn being 30 per cent above the 2017 estimates. The deficit is in the sum of N2.005tn.

The deficit is 1.77 per cent of the Gross Domestic Product which is in tandem with the demands of the Fiscal Responsibility Act. However, deficits, most of the time, mature into debts and debts are not paid back with GDP but with available revenue.  Thus, there are challenges inherent in the quantum of the deficits. Furthermore, the quantum of the deficits raises the poser; must we run deficits year after year, especially in the face of otherwise available and sufficient resources? The answer to this poser will be provided in the course of this discourse.  The deficit is 23 per cent of the overall expenditure and 30 per cent of the retained revenue.  It is to be financed mainly by borrowing the sum of N1.699tn from external and domestic sources. This will further add to our already high debt profile and increase provisions for debt repayment and servicing in subsequent years. The balance of N306bn is to be financed from proceeds of the privatisation of some non-oil assets by the Bureau of Public Enterprises. There is as of now no certainty around the actual non-oil assets to be privatised.

Nigeria’s debt service is rising and we are keen on procuring more debt. The debt service appears to be crowding out expenditure in critical infrastructure and human development.  The debt service of N2.014tn, which is 23 per cent of the overall 2018 vote when added to the sinking fund of N220bn (three per cent of the overall vote) for the retirement of maturing bonds add up to 26 per cent of the overall vote. This is above one quarter of the expenditure.  At the end of the day, if there is a shortfall in revenue, salaries and overheads will be drawn down, debts will be serviced and paid whilst capital projects suffer. At 26 per cent of overall expenditure, the debt service is high.  By borrowing, we are further increasing the stock of public resources that will be laid out for debt service in subsequent years. The trajectory of debt service and capital budget implementation over the years speaks to the challenge. In 2014, the Federal Government spent N941.67bn to service debts whilst deploying only N585.61bn to capital expenditure.  Again, in 2015, the Federal Government spent N1.060tn for debt service whilst investing only N384.07bn for capital expenditure. As of the end of 2016, available figures indicate that we spent N1.384tn in debt service. In 2016, the Federal Government claimed that it invested N1.2tn in capital expenditure which is 76.81 per cent of the overall capital vote.  The word “claimed” is used because the expenditure figure of N1.2tn came out of the blues as the government refused to indicate the exact projects where it invested the money. There were no visible railways, schools, hospitals, roads, and airports to show for the investments and there were no project opening ceremonies, which is the tradition in Nigeria. All these show a wide margin between the debt service and capital expenditure.  The actual figures for 2017 are not yet available.

When it is considered that some of the expected sources of revenue in any given year may not likely materialise, the high debt service becomes an undue burden. Furthermore, debt service as a percentage of retained revenue is growing. The retained revenue is N6.607tn whilst the debt service and sinking fund is N2.234tn. Therefore, debt service is 33.81 per cent of the retained revenue while it is 26 per cent of the overall budgetary expenditure of N8.612tn. This is on the high side. To understand the opportunity cost of debt service in 2018, it will be compared to the capital expenditure of five key and strategic ministries. The total capital allocation to the Ministries of Education, Health, Power, Works and Housing, Defence and the North-East Intervention Fund as a percentage of debt service is 96.18 per cent. Thus, we have been spending and will likely spend more on debt service than on capital expenditure in 2018 and subsequent years.

Also, the process of identification of the assets and the actual privatisation has not started. Also, from the experience of 2016 and 2017 budget implementation, the President and the National Assembly need to start the approval and implementation of the borrowing process early, so that funds can be available to implement the 2018 capital budget when approved.

In the circumstances, there is the need to reduce the deficit to manageable proportions. The first suggestion is that considering the high oil prices, nearly hitting $70 per barrel, the National Assembly needs to consider a slight increase in the benchmark price of crude oil to not less than $47.5pb. This will increase available revenue and still leave a reasonable sum for savings in the Excess Crude Account. The second issue is that it makes no sense to go borrowing when there are available but untapped resources or resources that are being mismanaged or possibly stolen by public officials. The Federal Government needs to seriously take steps for the implementation of the Fiscal Responsibility Act’s provision on remittance of operating surplus by scheduled Ministries, Departments and Agencies of government. There are now 122 of such scheduled MDAs. Considering the experience of the Joint Admissions and Matriculation Board which remitted over N5bn in 2016 when it had over 15 years not remitted up to one tenth of that figure, the evidence points in the direction of holding back revenue due to the Consolidated Revenue Fund by the management of these MDAs.

A number of examples of agencies will show a few leads. If JAMB remitted this sum, how much has the West African Examination Council, NECO and similar examination bodies remitted? Between these bodies and JAMB, who handles more students and has a larger operating budget? At a time private radio and television stations are making profit, should the Nigerian Television Authority and Federal Radio Corporation not be in a position to pay in billions of naira in operating surplus every year?

But who is charged with ensuring that these agencies remit their operating surplus to the CRF? It is the Fiscal Responsibility Commission, an agency that has been neglected in terms of proper funding and support and a commission without commissioners. The very miserly vote of N534m representing 0.01 per cent of the 2018 budget proposal given to the Fiscal Responsibility Commission flies in the face of its responsibilities to ensure the remittance of operating surplus from 122 MDAs. First, the Commission needs to embark on sensitization and capacity building of scheduled MDAs on the operating surplus template which it devised. The second is that the FRC needs to engage a lot of forensic professional competencies to enforce the template of erring MDAs. It is therefore recommended that the vote of the FRC be increased to not less than N5bn whilst it works out an aggressive schedule of enforcing the operating surplus template. The government needs to invest optimally in revenue collection to reap the bounties of increased revenue.

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