Thursday, 21 January 2016

2016 BUDGET AND ECONOMIC REVIVAL

President Muhammadu Buhari
All things considered, the size of the N6.08 trillion 2016 federal budget for 2016 should be of little economic interest. Had the budget formulation, presentation and appropriation followed the laid-down time schedule, the agreed oil price benchmark would have been higher than the N38/barrel, thereby giving a different budget size. But the projected volume of crude oil production invites curiosity.

Despite the glut in the international oil market, the loss of exports to the US, as well as frequent reports of pipeline vandalism and unsold crude oil cargoes, (all of which should depress oil output and export figures), the actual oil production level as at September 2015 and the projected production for 2016 are surprisingly robust. It stands at over two million barrels per day. Has government been under-reporting oil production and export data all the while? Well, the numbers portend a little hope.

Given full transparency and subject to the Treasury Single Account (TSA) system, actual oil receipts should surpass projections. Although improper management by policymakers turned the period of high crude oil price to an oil curse era, yet there is need for proper handling of receipts from the oil sector. For example, budget revenue projections should include another category detailing Federal internally generated forex revenue.

Notwithstanding the manifest desire to spend heavily on capital projects, it is noteworthy that projected recurrent expenditure represents 70 per cent of the proposed aggregate spending. That is understandable because budgets contain provisions for the upkeep of already existing structures as well as for recurring activities inherited from earlier periods. It is noted that the Budget address assures that the recurrent projections are based on good cost estimates.

Away from the budget revenue and expenditure projections, of real interest should be the actual budget implementation level, which may be on target or higher, or lower than the initial budget size. The implementation of the approved budget items depends on their order of priority, the inflow of revenue and the efficiency of the execution machinery. Over the years, this machinery has not worked satisfactorily, particularly with respect to the implementation of capital projects even though this is usually blamed on revenue shortfall.

Considering the mass unemployment and infrastructural shortfall, the plan to accord prime priority to the servicing of the national domestic debt (NDD) is misplaced. Both the NDD’s blossoming and accelerated dissipation of Federation Account (FA) dollar allocations began following the forced or presidential suspension of the Central Bank of Nigeria (CBN)  proposal on August 14, 2007 to have the allocations properly converted to non-inflationary realised naira revenue via deposit money banks.

The Monetary Policy Committee had in May 2009 reinforced an earlier decision in 2007, urging the CBN “to issue short-term instruments to be synchronised with the Debt Management Office issuance of FGN Bonds to mop-up excess liquidity in the system”. All FGN Bonds were subsequently regrouped under varying tenors and coupons.

Therefore, the NDD is non-contractual, non-investable and fraudulent and should be dishonoured and voided by the National Assembly as it considers the 2016 Federal Budget. The debt service provision for the NDD should be used instead to fund the graduate teacher employment programme and accelerated execution of critical infrastructural projects and thereby reduce the level of planned borrowing.

Since the return to the democratic dispensation, the public has been treated to the singsong of a private sector-led job creation drive in the annual budgets. This is actually the heart of the budgets; it is the bounden duty of every administration to actualise the dream. That takes cognisance of the fact that the private sector accounts for far greater volume of economic activity and much larger proportion of the national workforce than the entire public sector across the tiers of government.

The 2016 Budget address chorused the singsong but it was mere lip service because of the misinformation contained in Paragraph 9, namely, that there existed macroeconomic stability which the Buhari administration would continue to maintain.

To put true macroeconomic stability in place is not a government favour but an essential for the private sector to operate optimally and play its vital role. Thankfully, the Ministry of Budget and National Planning differed in the 2016-18 MTEF & FSP document where it bemoaned ‘the volatile macroeconomic situation.’

Is that volatile situation not identical to the condition that gave rise to the MPC proposal of 2007? Is the lack of macroeconomic stability not responsible for the piling-up of the avoidable and costly NDD, among other economic ills?

The Buhari Administration should, therefore, immediately lift the counter-productive presidential suspension of the CBN plan. Upon the implementation of the proper conversion of FA dollar allocations by beneficiaries to non-inflationary naira revenue via deposit money banks, many of the seemingly difficult issues in the 2016 Budget will dissolve.

For then actual fiscal deficit will fall within the set limit of three per cent of GDP and there will prevail true macroeconomic stability characterised by inflation below three per cent, middle single digit band lending rates (4-7% which are positive in real terms) and a stable realistically valued domestic currency that commands public confidence.

And so, practically every aspect of the 2016 Budget can be handled with aplomb. We are convinced that, whatever the price of crude oil, Nigeria can self-finance rapid inclusive growth and development. (Source: Guardian)