Recession: Can FG implement ambitious 2021 budget?

… Numbers points to the contrary – Jaye Gaskia

, … Oil price, uncertainties’ll impact implementation – Prof Ekpo

Over the years, Nigeria’s budget has been fraught with uncertainty with implementation always being problematic. With revenue continually on the decline analysts are wondering how the federal government would implement its N13.58 trillion budget; BENJAMIN UMUTEME writes.

The passage of the 2021 Appropriation Bill by the National Assembly, made it obvious that the federal government was in a hurry to begin implementation of the of its N13.58 trillion 2021 budget.

Following the disruptions caused by the Covid-19 pandemic leading to oil price meltdown and the subsequent recession that followed, it is clear that prompt action is needed to drag the country back to the path of growth.

In spite of optimism in government quarters of a quick turn-around to the present situation, analysts have enthused that the fiscal authorities need a very ambitious plan to quickly exist the recession.

2021 budget

Themed: Budget of Economic Recovery and Resilience, Nigeria’s 2021 budget is expected to bring the country out of recession and position it for positive growth, with many agreeing that the country would have to spend its way out of the recession woods with various stimulus packages.

The National Assembly had last week passed the 2021 Appropriation Bill to the tune of N13, 588, 027,886, 175 trillion as an aggregate expenditure. The approval was done during an emergency session convened for the purpose of passing the budget.

The approved budget figure by the National Assembly comprises total Capital Supplementation of N1,060,751,051,650 and total Capital Expenditure of N4,125,149,354,222, Statutory Transfer stands at N496,528,471,273; recurrent Expenditure of N5,641,970,060,680 and Gross Domestic Product, GDP growth rate of 3.00 Percent.

The Bill passed by the National Assembly also provided the sum of N3,324,380,000 trillion for debt servicing.

The budget estimate was increased by the sum of N505, 607,317,942 from the estimate of N13, 082, 420, 568,233 presented to the joint sitting of National Assembly by President Muhammadu Buhari on October 8, 2020.

The appropriation bill was predicated upon the following parameters of Benchmark Price of Crude Oil $40 Per Barrel; Crude Oil Production at 1.86mbpd; Exchange Rate at N379/US$; and Gross Domestic Production (GDP) Growth Rate at 3.00 percent.

Meanwhile, the deficit of N5,196,007,992,292 in the budget is expected to be financed from sale of assets and privatization with projected estimate of N205, 153, 707, 813 while N709, 685, 716, 725 is expected from multilateral/bilateral project- tied loans.

For President of the Senate, Ahmed Lawan, the budget would: “Ensure that the economy is supported fully through public expenditure, because the economy of our country depends largely on public expenditure.”

Notwithstanding the encouraging words from the Senate President, financial analysts, who have tak en time to peruse the budget, have said the numbers speak differently.

Numbers speak differently

In a telephone interview with Blueprint Weekend, the Coordinating Director at Praxis Centre, Jaye Gaskia said the 2021 budget is ambitious as the government tries to address pressing economic challenges.

He noted that despite government’s plan, getting the resources to fund the budget remains a major constraint.

“Sadly enough the crafters of this budget did not take all this into account. Almost always they come up with estimates but they are hardly implemented.

“Take for instance, the amount allocated for debt servicing and governance, with dwindling revenue it iis not sustainable,” he said.

Similarly, an Economist, Professor Akpan Hogan Ekpo, expressed fears that instability in the global oil price and uncertainties in the oil market will impact negatively on implementation.

“I have always argued that oil price is an outside thing because we do not control the price. We cannot be planning our economy or budget on oil prices, oil prices are not stable, so we must have a non-oil budget and it does not mean that oil will be zero. For example, if you budget with oil price at $40 per barrel, what if it becomes $30 or $20, how do we generate the difference? Again, we all know oil is a wasting asset because it will finish one day. The revenue projection of 2021 budget still takes oil as the main source of revenue, which in my mind is dangerous.”

Reliance on oil will lead to more borrowing

An economist in the Department of Economics, Delta State University, Abraka, Dr. Kester Erawoke, noted that continuous reliance on oil as a major source of revenue generation will only lead to more borrowing.

He said: “The federal government hopes to generate almost N8 trillion for budget 2021. However, the amount budgeted for debt servicing is about N3.12 trillion, this means most of the proposed 2021 budget will be used to service loans, what will be left for capital and recurrent expenditure?

“It is a big problem. Remember the loan obtained from China, they will not let go of any debt because all monies are for specific projects and if they are not paid, they will take over such project with respect to agreement reached.”

An Abuja-based Political Economist and Development Researcher, Adefolarin A. Olamilekan, was even more blunt when he reminded our correspondent that budget implementation has always been a challenge since 1999.

According to him, the budget may be good on paper but ensuring proper management of resources allocated will determine the level of implementation.

“In Nigeria, especially with the advent of democratic civil rule, budget implementation has been a recurring challenge just has the budget itself remains a ritual financial presentation activity between the executive and legislature.

“The 2021 budget stands at N13.5trillion, with 70 per cent for recurring expenses and 30 per cent for capitals. And going by the revenue projection of government implementation of the budget look so good on paper but in actual fact it will be challenging. Due to poor monitoring and evaluation of budgeted resources and projects,” he said.

Development Economist and Board Chairman, Amaka Chiwuike-Uba Foundation (ACUF), Dr. Chiwuike Uba, was even more apt when he said that estimates and sectoral allocations in the budget did not align with the theme of the budget, stressing that “it lacks the potential to lead to economic recovery and resilience.”

In a press statement, Dr. Uba said that the decision by the National Assembly to increase the budget from N13.08 trillion to N13.58 trillion (a 3.9 per cent increase) has once again, exposed the weaknesses inherent in the legal framework for fiscal transparency in Nigeria.

“Some of the budget parameters are realistic, while a greater percentage of the parameters/estimates are overtly too ambitious and unrealistic. The oil price benchmark and oil production output are realizable. The inflation rate of 11.95 per cent, the exchange rate of N379/$1, a growth rate of 3 per cent, revenue and fiscal deficits projection appear very unrealistic, given the available data and trends. In fact, pegging the exchange at N379/$1 creates room for the black market, round-tripping, and multiple exchange rate regimes.

“More so, given the increasing cost of goods and services, the current inflation rate of over 14 per cent is expected to be on the rise till sometime in June 2021. Therefore, even before the implementation commencement, the 2021 budget is already having credibility issues,” he noted.

Uba further said; “The revenue projection of N8.3 trillion is unrealistic given the previous years’ revenue performances. Since 2015, the actual revenue of the federal government has only increased from N3.24 trillion in 2015 to N3.86 trillion as of 2019, representing an increase of less than 20 per cent. On the other hand, public debts and unfunded deficits have witnessed a steady increase.

“The budget deficit increased from a deficit of N1.52trn in 2015 to N5.2 trillion in 2021, and public debt of less than N10 trillion as of June 2015 to N25.2 trillion as of June 2020. In the same vein, the debt service increased from N624 billion in 2014 to N3.3 trillion in 2021. Painfully, the budgeted 2021 fiscal deficit will increase at the end of 2021, with its attendant implications on debt servicing.

“Nigeria, therefore, is gradually heading towards a fiscal cliff with debt service to revenue ratio hitting over 90 per cent.

“This situation is made worse with the increasing cost of governance. The recurrent expenditure has continued to increase despite the hardship many Nigerians are subjected to by the government.

“Almost 50 per cent of Nigeria’s 2021 budget will be spent by less than 0.2 per cent of the population. When subjected to further scrutiny and analysis, the amount for recurrent expenditure may even be more, due to classification issues, or, administrative budget manipulations, or smartly inserted frivolous items as part of capital expenditures.

“In addition to over N200 billion frivolous items in the initial budget presented by the President to NASS, items such as the purchase of catering materials, computers, purchase of office buildings among others are still included in the 2021 budget.

“Unfortunately, some of the items classified as capital expenditures do not have any direct impact on the citizens. Economic recovery and resilience cannot happen in such an environment.”

Silver lining

Mr. Folarin insisted that for the 2021 budget to see the light of implementation there must first be proper monitoring and evaluation of approved budget resources and projects.

“And this must include both legislative oversight and anti corruption agencies searchlight. Secondly, eliminate every form of administration corruption around the procurement system. Thirdly, sanctions should be meted out to any government official found culpable of sabotaging the budget,” he added.

In a chat with our correspondent, an Economist, Friday Efih, noted that the crafters of the budget are not realistic with the estimates given.

“For instance, how do you put daily production output at 1.86 million with OPEC cuts still in place and prices so unstable?

“Also, look at debt servicing that is unsustainable. So, how is the government going to finance the budget when a large chunk of its revenue goes to servicing debt? I don’t think they consider all this when they draw up the budget,” he told Blueprint Weekend.

For Uba, no meaningful result is achieved with a knee-jerk approach, even as he stated that the budget when evaluated in annual real performance is less than 30 per cent on the basis of value for money and cost-benefit analysis (including outcome and impact).

He further said: “Achieving the objectives of the 2021 budget of economic recovery and resilience require real investment in key infrastructures, health, education, and other key economic and social sectors. Infrastructure financing through the Public-Private Partnership (PPP) vehicle as well as CBN’s funding to targeted sectors needs to be deepened.

“Instead of giving small amounts of money as grants/loans to millions of Nigerians, it is important to identify, at least, two key businesses/ entrepreneurs, with the capacity to scale up and employ more people in each state and fund their businesses, accordingly. Seventy-two big and solid corporations in each state are better than the millions of businesses funded by the CBN without any impact on the economy. Economic recovery and resilience require big and bold decisions.”

He added that: “States and/or regions are the main economic drivers. It is, therefore, important to use the states as economic building blocks to build a stronger, more resilient national economy. Currently, there are multiplicities of duplicated projects across the States, leading to wastages.

“The governments need to engage in more targeted economic development, which involves conducting a reality-based assessment of a state’s strengths and potentials to determine the costs and benefits of interventions. Nepotism at all levels should be discouraged and discontinued as we work to recover the economy and build a resilient economy.

“Finally, education and training is an important aspect of economic recovery and resilience. To this end, it is important to increase education funding to power the future, as universities and other institutions begin to build linkages with the industries and other private sector organizations.

“Economic recovery and resilience cannot happen if the costs of governance continue to rise annually. Citizens can only become part of this process, if and only if, they see the commitment and sacrifices of those in government. Nigeria needs everybody to salvage the economy, going forward.

On his part, a Professor at the Nasarawa State University, Keffi, Uche Uwaleke, told our correspondent that, “The attention now should focus on the implementation of the capital component in particular as soon as the extension granted by the National Assembly with respect to that of 2020 ends next year.”

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