2019 Budget: Matters Arising (2)

The expenditure framework of the 2019 budget proposal continues the tradition of getting the priorities wrong. Of the overall expenditure projection of N8.83tn, recurrent non-debt takes N4.04tn, which is 45.75%; capital expenditure is N2.031tn, which is 23%; statutory transfers are to be funded by N492.36bn, which is 5.58%; debt service gulps N2.14tn, which is 24.24% while sinking funds to retire maturing bonds (which is still a part of debt service) receives N120bn, being 1.35% of the votes.
The first challenge arising from this expenditure framework is that capital expenditure is to take 23% of the budget. This is not good enough for an economy experiencing massive infrastructure deficit. Previous experience indicates that the capital vote is very poorly implemented. For instance, out of the 2018 capital vote of about N2.87tn, only N820.57bn had been released as of December 14, 2018. President Muhammadu Buhari was however silent on how much was cash-backed and utilised as of that date. It is the norm in Nigeria’s public finance management that not all sums released get cash-backed and not all cash-backed sums get utilised. It is therefore not sufficient to make proposals which may not be followed through at the end of the day. It is also imperative for the administration to ensure that the bulk of the capital expenditure is developmental rather than administrative. This is the only way it can have a direct impact on the majority of citizens.

The second challenge is that the rising debt service appears to be crowding out expenditure in critical infrastructure and human development. At the end of the day, if there is a shortfall in revenue, salaries and overheads will be drawn down, debts will be serviced whilst capital projects suffer. At 24.24% of overall expenditure, the debt service is higher than the capital expenditure. When the sinking fund of N120bn is added to debt service, it comes up to N2.264tn, which is 25.70% of the overall budget. When the 2018 experience is used, it shows that Nigeria has already spent over a trillion naira in debt service at a time no kobo had been released for capital expenditure in the second quarter of 2018. And the releases for capital expenditure only came up to the aggregate sum of N820.57bn in December 2018.

Continued massive domestic and foreign borrowing will grind the economy to a standstill very soon because of the high debt to revenue ratio. With a debt to revenue actual in 2017 of using 68 kobo in every naira of our total revenue to pay back debts, we may soon have to abandon capital expenditure and even personnel to be able to pay back debts. Still on debts, domestic borrowing has been stated to crowd out private sector borrowing and leaves little or nothing for the private sector to create jobs and wealth and increase productive capacity. It makes banks lazy as they are sure of getting fat returns for taking no risks. As such, their appetite for intermediation and risk-taking becomes low. Massive foreign borrowing at a time of economic instability leading to massive depreciation of the naira increases the demand for financial resources to repay the debt. From a value of under N200 in early 2015 to a value of N360 to $1, the pressure is building up. With the fall in oil prices and lack of diversification in our economy, debt repayment will continue to gulp a huge part of our revenue.

The third challenge is to resolve the contradiction between the Federal Government’s mantra of cutting down waste, improving efficiencies and removing “ghost workers” from the payroll and its relationship with the rising recurrent non-debt expenditure. Recurrent non-debt expenditure got N4.04tn as against N3.51tn in 2018. This is 15% increase between 2018 and 2019. In 2017, the approved recurrent non-debt expenditure was N2.99tn. This increment cannot be the sign of a system that is taking steps to remove waste and inefficiencies. If it is also understood that the new minimum wage demand of workers has not been factored into the expenditure proposal, then, it would be clear that personnel expenditure, a component of recurrent non-debt expenditure, will increase by no less than 60% in the short to medium term. This will definitely happen before the end of the 2019 fiscal year.

The GDP is expected to grow at 3.01% in 2019. However, the growth recorded in the last four quarters is as follows: Q4 2017- 2.11%; Q1 2018 – 1.95%; Q2 2018 -1.50% and Q3 2018 – 1.81%. Evidently, if there are no special fiscal, monetary, trade or other economic interventions, the GDP projection may not be realised.

When the rhetoric from the ruling All Progressives Congress and the response of the main opposition challenger, the Peoples Democratic Party, is paired with the revenue and expenditure analysis, it is clear that the Nigerian economy is in a mortal danger and trouble lies ahead especially for the poorest of the poor. There are no new ideas, innovations and ideals on how to expand the economy, especially through the raising of additional revenues and resources to fund development. Yes, the little available resources have been mismanaged by successive governments including the current government. Even if we have faithfully utlilised previously available resources, we would have still needed massive infusion of other resources to fulfil our developmental dreams. The oil economy revenue is too low for our developmental needs.

Thus, our politicians need to come down from their high horse and get a dose of reality and intellectual capital to be able to drive this ship in the next four years. We need across the board cutting down on wasteful expenditure and frivolities. From the legislature, executive to the judiciary, we need a new thought process. The leadership needs to come clean to open up the system by ensuring that their income is in accordance with the constitution as stipulated by the Revenue Allocation Mobilisation and Fiscal Commission. Contracts should no longer be inflated.

It is clear that increased domestic revenue generation has become imperative for development. The Federal Government needs to account for stamp duties which it has been collecting and which have yielded trillions in revenue. It may also consider removal of fuel subsidy to redirect over a trillion naira in expenditure and increase VAT to 10%. But this must be preceded by enhanced transparency and accountability across all Ministries, Departments and Agencies of government. The budget should contain clear provisions on how to deal with the minimum wage demand of labour while responding to the demands of higher education as enunciated demands of the university and polytechnic lecturers.

Also, the National Assembly should approve the MTEF before commencing work on the budget. It is expected to do a thorough vetting of the proposals before their approval and forwarding for presidential assent. Besides, it should also ensure that revenue projections are based on empirical evidence and trim budget expenditure to be in harmony with realistic and realisable revenue projections. The budget should be realistic, implementable and in harmony with available resources. Finally, reforms must precede increased domestic resource mobilisation. The President should make up his mind on what he wants out of reform bills such as the Petroleum Industry and Governance Bill. He should liaise with the National Assembly to get the bill signed into law.