Center for Social Justice, Author at Centre for Social Justice

The 2015 federal budget laid before the National Assembly on Wednesday, December 17 2014, by the Minister of Finance, Ngozi Okonjo-Iweala, came very late in the year. It was the second time President Goodluck Jonathan would chose to make himself unavailable to address the Nigerian people on key economic policy directives in the budget. Although, legal scholars opine that the Constitution did not oblige the President to come in person to present or lay the budget before the legislature, or even address the nation, the idea of a President and Commander in Chief of the Armed Forces of the Federal Republic of Nigeria shying away and delegating his core duty to another person departs from tradition and does not portray the President as one in charge of the country’s economic policy direction. The second issue is that the budget is being laid before the legislature at a time the medium term expenditure framework (MTEF) has not been approved. This is contrary to Part 111, section 18 of the Fiscal Responsibility Act (FRA). The MTEF undergirds the budget and nothing is to be found in the budget that has not already been approved in the MTEF. The third issue is that the fiscal authorities in the Ministry of Finance and Budget Office of the Federation have refused to provide information on the implementation of the 2014 budget. As at today, only the first and second quarter budget implementation reports of 2014 is available to the public. This is contrary to Part V, section 30 of the FRA. Thus, the parameters for comparing the budgets of 2014 and 2015 may not be fully available to Nigerians. Key Assumptions The 2015 Federal budget is premised on the following key assumptions in Table 1 ASSUMPTIONS THE APPROVED 2014 BUDGET PROPOSED 2015 BUDGET Initial Proposal Revised Proposal OIL PRICE (PER BARREL) $77.5 $78 $65 CRUDE OIL PRODUCTION (mbpd) 2.39 2.2782 2.2782 EXCHANGE RATE (N/$) 160.3 160 165 GDP GROWTH RATE (%) 6.75 6.35 5.5 Oil benchmark price Insisting on a benchmark price of $65 per barrel at a time crude oil is trading below $60 per barrel is an exercise in futility, which seeks to lay the foundation for budget failure. It is also a ready-made excuse for the budget not to achieve its objectives. A budget must be realistic and its revenue framework based on accruable revenue sources. Planning with facts and statistics, which the planner knows to be wrong is a waste of time. For the government to merely hope without any empirical basis that the price of oil will rebound in 2015, as the basis for fixing a benchmark higher than the actual price raises issues about the credibility of the budget. The benchmark should have been lower than current prices, and if the price eventually goes up, savings can accrue to the Excess Crude Account (ECA). Crude Oil Production The unfortunate apology that this projection reflects our actual production for the time being speaks volumes of the willingness of the government to perform its basic obligation, which is to secure lives and properties. The Budget Office of the Federation described the lowered quantity produced in 2014 as quantity shock. A government with all the paraphernalia of security at its disposal, including the army, navy, air force, police, civil defence, Nigerian Maritime Administration and Safety Agency (NIMASA) and security contracts to some notorious companies, cannot be heard pleading oil theft and pipeline vandalism as an excuse for lowered production estimates. Considering that crude oil is the virtual mainstay of our economy, this abdication of duty to police on the production and transportation of the product, is unimaginable and ranks the government low. Exchange Rate Insisting on an exchange rate of N165 to the dollar at a time the currency is facing severe pressure, and the Central Bank has fixed a band of – +5 percent around the N168 to dollar corridor appears overtly optimistic. Why not use N168 to dollar, or the interbank rate of N167.5 to dollar. With the sell-off of stocks by foreign investors, increased frivolous spending for the 2015 campaigns, and obvious liquidity challenges, the naira may likely depreciate further. Undue optimism in the face of daunting challenges pointing in the opposite direction is not the way for credible planning. Therefore, the benchmark price of crude oil and the exchange rate projection seem to be based on inaccurate data and information and will lead to lack of predictability in the budget Fiscal Items The composition of the fiscal items in the 2015 proposed budget is as follows. Fiscal items Approved 2014budget % of Total 2014 Approved Budget 2015 Proposed Budget % of Total Proposed 2015 Budget N’bn N’bn FGN Government Revenue 3,731.00 74.72 3,602.96 80.78 TOTAL FGN EXPENDITURE 4,993.06 100.00 4,460.46 100.00 Statutory Transfers 408.69 8.19 411.84 9.23 Debt Service 712 14.26 943 21.14 Recurrent Expenditure 2,468.83 49.45 2,616.01 58.65 Personnel Costs (MDAs) 1,727.61 34.60 1,836.73 41.18 Overheads 251.93 5.05 199.18 4.47 CRF Pensions 187.45 3.75 231.41 5.19 Other Service Wide votes 301.84 6.05 348.69 7.82 Capital Expenditure (including SURE-P) 1,552.99 31.10 633.53 14.20 Share of Capital as % of Non-Debt Expenditure 36.28% 18.01% Share of Capital as % of Total Expenditure 31.10% 14.20% SUBIDY REINVESTMENT PROGRAM (SURE-P) 268.37 5.37 102.5 2.30 SURE-P Board (Running Cost) 1.2 0.02 0.5 0.01 SURE-P (Capital Expenditure) 267.17 5.35 102 2.29 Fiscal Deficit (Based on Regular Budget) -993.68 -755 DEFICIT/GDP -1.24% -0.79% Some financing Sharing from Stabilisation Fund Account (ECA) 324.97 80 New Borrowing 624.22 570 Capital Expenditure At a time of lean resources, the federal government proposal brings home the wrong steps of the current and previous administrations. A capital expenditure proposal of N633.53billion (14.20% of budget), down from the N1.553 trillion (31.10% of budget) proposed in 2014, is a huge decline -16.9 percent decline. For an infrastructure deficient economy, this level of capital expenditure is totally unacceptable. And the snag is that if tradition is to be followed, no year in the last ten years has FGN released and cash-backed up to 80% of budgeted capital expenditure. Definitely, implementation of the capital budget will witness further decline as a percentage of overall expenditure. While capital expenditure declines, recurrent spending is increasing. Recurrent Expenditure The same mantras that have been mouthed since 2006 are still the panacea that the government offers to bring down recurrent spending. The integrated financial management information system (IPPIS), government integrated financial management Information system (GIFMIS), Single Treasury Account, etc. Why would IPPIS take eight years to complete and enrol all government workers? But, the government is not showing the results of previous interventions and how it intends to stop the waste in the system. Despite promises to hand over the persons who looted the treasury with ghost workers, the government appears to be shielding them. Since early in 2014, the Minister of Finance claimed that a report has been lodged with ICPC, absolutely nothing has been done or has come out of it. The thieves are still working the streets free. Debt Service The demand for funds to service debts is increasing. It rose from N712billion in 2014 (14.26% of budget) to N953billion in 2015 (21.14% of budget). The major issue with the increased spending on debt servicing is that the bulk of these debts were not incurred in accordance with due process of law. With a debt profile of $69.6billion, federal government and the states cannot point to capital projects and activities or human capital developmental projects worth that much. A good part of the debts were incurred to fund recurrent instead of capital expenditure against the clear provisions of the FRA (sections 41- 44 of the FRA). To imagine that Nigeria is spending more on debt service compared to capital expenditure is a nightmare. We are proposing to spend N310billion more on debt service than capital expendit ure. The debt service provision is 148.84% of capital expenditure. At the same time, debt service amounts to 26.17% of our retained revenue. Personnel Costs (MDAs) The rising personnel costs after ghost workers have purportedly been weeded out from the federal service and other reforms, such as IPPIS kicking in is a bit confounding. It is unfair that less than one percent of Nigerians should be getting 41.18% of the overall budget, up from the 34.60% they got in the 2014 allocation. The N1,.837 trillion for MDA personnel costs, is an allocation that needs appropriate action geared to reduce the same in the short, medium to long term. Statutory Transfers Although the full breakdown of statutory transfers are not available to the authors, the increase from N408.69billion (about8.19%) of the budget in 2014, to N411.84 billion (9.23% of the overall budget in 2015) appears on the high side. It appears that in this period of austerity, key institutions have not adjusted their votes to reflect the lean times. Other Service Wide Votes This rose from N301.84billion (6.05% of the 2014 budget) to N348.69billion (7.82% of the 2015 proposal). This increase is unacceptable in a time of lean resources. The Steve Oronsanye Committee on reforming the cost of governance stated as follows of service wide votes: “The committee noted the widely held view of the abuse of the utilization of the service wide vote. It was the view of the committee that budget heads currently captured under that vote could actually be captured either under specific MDAs or the contingency vote. “Considering the constitutional provision for the contingency vote, it is believed that the service wide vote is not only an aberration, but also an avoidable duplication. The committee therefore recommended that the service wide vote should be abolished and items currently captured under it transferred to the contingency vote or the appropriate...

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