The 2017 Appropriation Bill has finally lumbered its way out of the National Assembly. The National Assembly padded the bill with N143 billion. Out of the padded N143 billion, the lawmakers appropriated N10 billion to their arm of government.
The federal government would spend N7.44 trillion for its services in 2017 if the president eventually appends his signature to the bill as it is passed by the National Assembly.
To accommodate the additional N143 billion, the lawmakers adjusted the budget oil reference price from $42.50 per barrel to $44.50. By that single act, what could be saved for the rainy day through the excess crude account is reduced by $2 per barrel.
From a total sum of N7.44 trillion earmarked for the services of the federal government during the year, debt servicing would gulp N1.88 trillion. That is almost 25 per cent of the total budget. The budget has a deficit of N2.355 trillion which translates to 2.1 per cent of the country’s gross domestic products (GDP). The Fiscal Responsibility Act prescribes a maximum of three per cent of GDP as the acceptable ceiling for budget deficit. The federal government’s budget deficit is therefore, within acceptable limits. However, the debt burden is becoming increasingly unbearable for Nigeria’s fragile economy.
Recurrent expenditure, another liability factor in the budget takes the lion’s share of N2.988 trillion, leaving a paltry N2.1 trillion for investment in decaying infrastructure through capital expenditure.
The budget is grounded on considerably attainable economic variables. The oil reference price of $44.50 is a realistic target given the determination of the Organisation of Petroleum Exporting Countries (OPEC) and Russia, a major exporter of crude oil to boost prices by maintaining the production cuts brokered by OPEC in November 2016.
At the moment, oil price hovers around $53 per barrel and is not expected to drop drastically below $50. The oil reference price of $44.50 would beef up the excess crude account daily with a minimum of $7 per barrel.
The oil production target for the budget remains at 2.2 million barrels per day (mbd). That target has been elusive in the last two years because of the militancy in the oil rich Niger Delta region. Now with Vice-president Yemi Osinbajo’s economic diplomacy restoring a rather tenuous peace in the region, the budget’s oil production target remains attainable. At the moment, oil production stands at 2 mbd and could hit the budget’s target in a few months’ time.
With the two economic variables, oil price and production targets looking very attainable, the 2017 Appropriation Bill is not likely to suffer the volatility that its 2016 counterpart encountered. In 2016 the two variables were abysmally low, thus conspiring to slip the economy into recession.
There are strong indications that the economy would lumber out of recession by the third quarter of the year. It might eventually grow at something close to one per cent by the end of the year.
But the strong economic variables in the 2017 Appropriation Bill does not guarantee Nigeria’s development in the true sense of the word. The economy is not getting out of recession because of innovative productive measures initiated by policy makers and economy operators. The wane growth is simply driven by changes in oil price which is absolutely beyond Nigeria’s control. Operators of the economy merely sustain their business on federal government contracts and huge import duty waivers.
The only contribution to the expected growth in the economy this year is the move to silence the guns in Niger Delta which has boosted oil production from an abysmal average of 1.3 mbd in 2016 to 2 mbd.
Debt servicing has become a huge burden. Nigeria’s massive infrastructure deficit abhors the spending of 25 per cent of annual budget on debt servicing. Nigeria’s huge debt service commitment is a factor of its low credit rating.
The country’s credit rating is a few notches above junk bond. But Nigeria remains a high risk borrower. Consequently, it borrows from the international money market at a minimum of seven per cent. Germany borrows at anything from 0.5 to one per cent. The high interest rate is largely the attraction in Nigeria’s external debt instruments. It was the major factor behind the over-subscription of the last Euro bond the federal government floated.
At home, Nigeria’s debt instruments attract a princely 14.5 per cent. The cost of fund is attrociously high. The most worrisome aspect of the debt burden is what Nigeria does with the borrowed funds. Most of the domestic debts are raised to fund the federal government’s monthly wage bill which hovers around N200 billion.
Nigeria maintains an over-bloated pay roll made up of thousands of loafers and outright ghost workers. Every finance minister from Ngozi Okonjo-Iweala to Kemi Adeosun has celebrated the removal of ghost workers from the federal pay roll in the last seven years, yet the ghost workers still find their way back into the system.
The report of the Steven Oronsaye Committee on the streamlining of the federal civil service is gathering dust in the archives as the federal government chalks up more debts to pay redundant and non-existent civil servants. That definitely is not the best way to tackle the debt burden.
