Review of the MTEF 2016-2018 (1).

The 2016-2018 Medium Term Economic Framework was submitted to the National Assembly by a letter from the President dated December 8 2015. The consideration and approval of the MTEF by the legislature took about one week. However, the Senate and House of Representatives have yet to reconcile their figures for a clean copy to be sent to the President. There are obvious implications of this development. The first is that the executive failed to comply with the provisions of Section 11 (1) (b) which requires that the MTEF be prepared and submitted to the legislature not later than four months before the end of the financial year. The second is that by approving the MTEF within a space of one week, the National Assembly had defeated the obvious purposes of the MTEF which serves as a pre-budget policy statement and creates opportunities for inputs from different stakeholders before it is approved. No such opportunity was given to stakeholders especially in the private sector and the civil society.

The third issue arising from this late presentation and approval is the fact that the MTEF is the basis for the preparation of the annual budget. However, before the approval of the MTEF, the executive has virtually finalised the annual budget estimates and had written to the National Assembly that it would present the same on Tuesday, December 22. This raises the poser: On what are the 2016 estimates based? It seems the administration merely understood the need for the MTEF as that of fulfilling all righteousness and just doing the perfunctory things that seem to satisfy the letter of the Fiscal Responsibility Act. The current timing and procedures violate the jurisprudence and philosophy of the MTEF.

In normal times, the Medium Term Sector Strategies for the Ministries, Departments and Agencies of government precede and form the basis for the preparation of the MTEF. However, the current MTEF did not have the benefit of being backed by the MTSS. Due to the absence of the MTSS, the MTEF did not contain sectoral envelopes and ceilings. This is so because the former cannot be prepared without the financial envelopes.

The MTEF is supposed to be anchored on national planning frameworks including Vision 2020 and its implementation plans. The Muhammadu Buhari administration has yet to unveil its policy document(s). Indeed, the drafting of the Federal Government policy framework is expected to commence in the first quarter of 2016! With the expiry of Vision 20:2020’s First National Implementation Plan 2010-2013 and the absence of a follow-up implementation plan which should have been the NIP 2014-2017, the MTEF rests on nothing. This submission is further buttressed by the fact that the projections in the MTEF have no links with the mother document being the Vision 20:2020. The All Progressives Congress’ manifesto does not qualify as a national high level policy document. It remains the partisan framework for winning political power. The foregoing raises a similar poser: Has Nigeria abandoned Vision 20:2020? If the answer is in the affirmative, which extant plan is its replacement? Vision 20:2020 recognises the problems with implementation of plans when it stated that flaws in the budgeting process that result in programmes and projects not being aligned to the nation’s strategic plans and priorities should be avoided.

The projection of crude oil production in the medium term is realistic – 2.2mbpd being the estimate for 2016. However, the benchmark price of $38pb for 2016 seems unrealistic considering the current price of the commodity which is below $38pb and the decision of the Organisation of Petroleum Exporting Countries not to cut down on production. The shale oil technology, return of Iran to the crude oil market, likely return of Libya in the medium term and slowing growth across the major oil importing countries also question the wisdom in adopting a reference price that may not materialise. It may be more realistic to peg the price between $20pb and $30pb and if more revenues come in through an increase in price, the new revenue could be programmed through a supplementary appropriation.

On the other hand, it appears that non oil revenue particularly Value Added Tax which is projected at N1,416.03, net of cost of collection can be improved. Evidence exists that firms liable to pay VAT either refuse to remit the due sums after collecting from customers or under-declare their sales and services to defraud the revenue agency. Banks, hotels, etc cannot in good conscience state that they return the due VAT which they collect to the treasury. The current estimate for 2016 and the medium term can be doubled if the Federal Inland Revenue Services and other agencies do their job well.

In the macroeconomic framework, the monetary policy component is very weak. It pegged the naira exchange rate at N197 to the dollar over the medium term. With the trend of declining oil revenue which is the major foreign exchange earner and the decline of the external reserves in an import dependent economy, the projection is unrealistic. It is a fact of Nigerian life that the US dollar currently sells at over N260 to 1USD whilst the Central Bank of Nigeria is unable to meet legitimate demands for foreign exchange. The MTEF was silent on projections for interest rate. The economic growth rate was put at 4.37, 4.81 and 5.09 per cent respectively for 2016, 2017 and 2018; while population will grow at 3.20 per cent per annum. Matching population increase and economic growth shows that the projected economic growth figures will not be enough to lift a good number of Nigerians out of poverty.

The MTEF was also non-categorical on the issue of removal or continuity of subsidy on petroleum products. This is not the way to go considering that subsidy will continue to be paid and the National Assembly will only be asked to approve supplementary appropriation bills after the bills have already been incurred. This defeats the constitutional imperative for approvals to come before expenditure, rather than the National Assembly being asked to ratify already incurred expenditure. Essentially, the present subsidy/import dependent model of sourcing petroleum products cannot be said to facilitate or provide the enabling environment for economic diversification and growth.

With various panels and committees recommending the scrapping of Service Wide Votes, it is surprising that the expenditure head still appeared in the MTEF. These votes have been abused and mismanaged in the past and retaining them continues to provide avenues for mismanagement of funds. The National Assembly has a vote of N115bn in each year over the medium term despite the pleas by stakeholders for the lawmakers to reduce its demand for funds. An interesting component of the MTEF is the introduction of a social welfare package in conditional cash transfers, homegrown school feeding programme and post-NYSC entrepreneurial development programme. With the exception of the NYSC programme, other components of this scheme are questionable. Is the Federal Government going to run school feeding programmes from Abuja? For the school feeding programme, will voted sums be enough for all schools across the federation or will it be done in pilots or need supplementation from state governments? It makes sense to ensure that the conditional cash transfers await proper documentation of citizens under the Nigerian identity system. Otherwise, it may be an opportunity to mismanage resources as happened under the SURE-P.

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