TAIYE ODEWALE, examines how the proposed N3 trillion deficit in the N7.939 trillion 2018 budget to be presented to the joint session of the National Assembly today by President Muhammadu Buhari, will be financed to revitalise the nation’s economy as explained in the 2018-2020 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP).
Recurrent deficit budgeting
Deficit budgeting on yearly basis has been the lots of the Nigerian nation over the years like most other countries of the world including the United States of America.
To start with in connotative terms, a budget deficit is an indicator of financial health in which expenditures exceed revenues.
Specifically, the term budget deficit is most commonly used to refer to government spending rather than business or individual spending, but can be applied to all of these entities.
Economists see budget deficit in the right direction when moderately practised by government and not excessively done on yearly basis. Deficit in any budget profile of any country, according to them, should not be more than 3 percent of its GDP and preferably less than it and be financed effectively from targeted sources. This has as always been the case with the deficit budgeting in the United States of America through treasury bills, notes and bonds.
But that cannot be said of Nigeria that have been finding it very difficult to finance its yearly budget deficits with attendant setbacks in targeted economy growth and development going by the scenario at hand of the N2.5trillion budget deficit of the outgoing year 2017 that is yet to be fully financed and the emerging N3trillion deficit for the coming 2018 fiscal year.
Though as indicated in the MTEF/FSP documents for the years, the deficit were moderate for being less than 3 percent of the N133.97trillion Gross Domestic Product (GDP) of the country, but the problem is their financing. While the N2.2trillion deficit earlier proposed for the N7.4trillion 2017 budget was 2.14percent of the nation’s GDP, the N3trillion deficit being proposed for the N7.939trillion 2018 budget is about 2.62 percent of the GDP.
The N2.2trillion deficit for the 2017 budget has even increased to N2.5trillion deficit due to low revenue income for government in financing it with attendant request for additional external loans yet to be approved by the National Assembly less than two months to the end of the year.
Sales of oil joint ventures
Little wonder that the federal government as indicated in the MTEF/FSP documents is considering selling some of its stakes in oil joint ventures to raise about $3 billion (about N1 trillion) as part of the measures to finance the proposed N3trillion deficit in the 2018 budget but how will it get the required loans for financing the balance of the remaining N2trillion and if it succeeds in achieving that, how sure would such deficit budgetary spending re-inflate the economy in a clime notoriously known for misappropriation of such strategic capital spending for bogus recurrent expenditure or even outright stealing or corruption?
The asset sales proposal, which is also contained in the FG’s Economic Recovery and Growth Plan, released by the Ministry of Budget and National Planning, reveals that the government’s stakes in other oil and non-oil assets would be significantly reduced.
Recall that debate on the sale of oil assets to fund the budget started in 2016 when eminent Nigerians such as the former governor of Central Bank of Nigeria (CBN) and now Emir of Kano, Muhammadu Sanusi II, the President of Dangote Group Alhaji Aliko Dangote, and the present governor of the CBN, Godwin Emefiele, urged the government to consider disposing some stakes in the joint venture agreement or the oil refineries to raise fund for development.
But Government later jettisoned the suggestion due to pressure from activists and some lawmakers. However, based on the realities on ground now, government is now considering the idea as the feasible option to reduce its financial burden on budgetary implementation.
Highlighting the parameters upon which the proposed plans for the implementation of the 2018 budget would be based oil prices in the last week of September. It was based on this that the Minister of Budget and National Planning, Senator Udoma Udo Udoma, said that Africa’s largest economy hopes that price of oil–the largest government revenue earner – would continue to rise and has, therefore, proposed $45/barrel oil benchmark for the 2018 budget as against N44.5/b for 2017.
According to him, the federal government also projects oil production at 2.30 million barrels per day for 2018 budget even though the Organisation for Oil Producing and Exporting Countries (OPEC) could cap output at 1.8mpb.
“Exchange rate is projected at N305/$, inflation rate at 12.42 per cent, GDP growth rate at 4.8 percent, Nominal GDP at N133.97 trillion, and Nominal Consumption at N87.95 trillion for 2018.
“Federal government also projects Non-oil Gross Domestic Product (GDP) N104.652 trillion and oil GDP at N29.323 trillion But total gross domestic product is forecasted at N113.4 trillion and debt to GDP ratio of 24.5 percent”
“We are expecting slight growth in the global economic outlook from 3.5 percent in 2017 to 3.6 percent in 2018, and an increase in sub-Saharan Africa from 2.6 percent to 3.4 percent in 2018. So, we are expecting increase in growth in Africa and particularly in Nigeria “, he enthused. He explained further that the projection consists of capital expenditure of N2.408 trillion, though exclusive of transfers.
Overall, gross federation account inflows of N10.387trillions are being projected for 2018, which is slightly less than the N10.403trillions in 2017 just as he declared that the key thrusts of the 2018-2020 MTEF/FSP were consistent with the goals of Economic Recovery and Growth Plan (ERGP), aimed at repositioning the economy on the path of diversified, sustainable and inclusive growth.
“Government measures to boost the economy are yielding results and efforts at minimising disruptions in the Niger Delta has helped oil production, currently running at 2.2 million barrels per day (inclusive of 450,000 barrels per day of concentrates).
“The execution priorities of the budget, which aligns with that of the nation’s Economic Recovery and Growth Plan (ERGP), includes stabilising the macro-economic environment, achieve agriculture and food security, improve transportation infrastructure, drive industrialisation with focus on SMEs, and ensure energy sufficiency in power and petroleum products.
“We must get more revenue so we can spend more on infrastructure and also get private investment to invest in the country, we need to create the right business environment to attract these private investors.
“We are on the right part as we implement the ERGP. So the three strategic objective of the plans is to restore and sustain economic growth, build the capacity of the people and creating a competitive economy where we produce what we consume and have enough for export.
“Actions to boost revenue generation are in progress, the oil and gas sector is working on a 50 percent reduction in operation cost as reduction in cost can lead to higher revenue.
“Also, the FIRS is driving more audit to enhance compliance to payment of right taxes which can also lead to increase of revenue, in the area of custom, they are working to ensure accurate technology which will speed up the process and make the assessment more accurate in determining the contents of container”, he added.
However, in her own contribution at the briefing, the Minister of State for Budget and National Planning, Zainab Ahmed, raised the concerns that all the projected plans may amount to nothing if Nigeria’s population growth is not checked.
The minister, who expressed the concern while responding to questions on the projections, said that the country’s population could soar to an estimated 450 million by 2050, described the population growth as a risk factor that is well known to government.
She said: “We can see that population growth is clearly higher than economic growth. We have a fertility rate of 5.7– 1 000. On the average, one woman has about 5.5 children.
“It is not sustainable. Times are hard. Resources are limited. Families must look for ways and means on how to reduce the number of children”.
But in concrete terms, government is not addressing the problem in anyway, pointing to that fact the overpopulation risk factor as compared to available resources and possible mismanagement of loans projected to be borrowed to finance the deficit budget will end up injuring the nation’s economy the more than revitalising it.