Sunday, 3 January 2016

BUDGET 2016: THE GOOD AND THE BAD

President Muhammadu Buhari
President Muhammadu Buhari recently un­furled a N6.08 trillion budget before a joint session of the National As­sembly. Stakeholders in the organized private sector, fi­nancial analysts and civil so­ciety activists have been tak­ing turns to look at what the budget holds in store for Ni­gerians. While many believe the budget has the potential to put the nation’s economy on growth path over the next few months, others are wor­ried at the huge deficit in the budget saying such level of deficit is capable of derailing the economy and pushing Nigeria back into debt peon­age.

Chief Executive Officer of Finan­cial Derivatives Company Limited, Mr. Rewane Bismark, sees growth in the budget saying that the spending and revenue estimate was based on the Keynesian model of countercy­clical spending aimed at stimulating growth, as spending in real terms is up 20 per cent and the deficit is to expand to $11billion – 2.16 per cent of GDP.
According to him, for an austere and frugal leader, deficit financing – requiring an additional N1.84tril­lion is a bitter pill to swallow espe­cially the reference to both domestic and more importantly, international borrowing.

He explained that the Eurobond market would be a real test of Nige­ria’s credit worthiness.
Bismark said: “The most notable shift in his economic ideology re­mains the mute but tacit acceptance of the adoption of a flexible exchange rate- a no go area up to a few days ago.
The budget is clearly consistent and is part of the 3-year Medium Term Expenditure Framework (MTEF). It seeks to stir Nigeria off the path of oil dependence.”

He affirmed that the budget hopes to achieve this through a focus on non-oil revenues by broadening the tax base and improving the effec­tiveness of our revenue collecting agencies.
He, however, stated that the re­newed drive to boost non-oil reve­nues may not be sufficient to cover the gap from lower oil revenues.

“It seeks it boost growth to 4.37per cent in 2016. From a relatively static and dogmatic ideological position, Buhari has moved forward in the spectrum of economic reform, which is a welcome development for most economists and investors,” Financial Derivatives CEO said.

The fiscal responsibility cam­paigner and Lead Director at Centre for Social Justice (CSJ), Eze Onyek­pere, lauded the proposals, describing it as a mix of welfare and develop­ment plan.

He was particular about the tax reduction plan, employment of graduates as teachers and audacity in allocation of 30 per cent to capital projects, adding that there was need to pursue vigorously the diversifica­tion of revenue sources to avoid task­ing the treasury.
He however, expressed worry that the fixing of the crude oil price benchmark at $38 per barrel when the commodity already sells below it was worrisome.

He said: “The implication is that the re­sources to finance the budget may not be fully available. The fact that the country shall borrow about 1.84 tril­lion to finance the deficit and also have set aside N1.36 trillion for debt servicing. We are accumulating debts in geometric proportions whilst our ability to repay is not growing as fast.”

He also expressed concern that the administration cannot make up its mind on the removal of petroleum subsidy, urging the National Assembly to thoroughly review the budget and ensure that any frivolous or inappro­priate expenditure is weeded out; set a framework for the identification of beneficiaries of the conditional cash transfer scheme to avoid fraud in the system.

A civil society activist and Exec­utive Director at OJA Development Consult, Abuja, Jide Ojo, said the budget actually seeks to stimulate the economy, making it more compet­itive by focusing on infrastructural development; delivering inclusive growth; and prioritizing the welfare of Nigerians.

He said: “The home-grown public primary school feeding and free education for science, technology and education students in our tertiary institutions is appealing. Federal Government’s plan to collaborate with states and local governments to tackle the ‘chronic shortage’ of teachers in public schools across the country by planning to recruit, train and deploy 500,000 unemployed graduates and NCE holders to strengthen basic edu­cation, especially in rural areas is also laudable.

“It is also commendable to note that this government will be encour­aging a reduction in tax rates for smaller businesses as well as sub­sidised funding for priority sectors such as agriculture and solid miner­als.”

However, given the continuous fall in crude oil prices, he noted that $38 on which the budget is pred­icated has become grossly presump­tuous as oil now sells for about $32 in international market.

“I still believe that PMB should have announced the removal of fuel subsidy rather than ordering the price to still be N87 per litre. This is one albatross the country can ill-afford to continue,” he added.

A team of analysts in an invest­ment and research banking firm, Afrinvest West Africa, led by the head, Mr. Ayodeji Ebo, affirmed that the planned fiscal expansion on the Medium Term Expenditure Frame­work (MTEF) of the Federal Gov­ernment may be positive for banks and other company earnings in 2016.

The MTEF highlights the federal government’s revenue and expen­diture framework for the next three fiscal years and provides a sketchy view of the policy direction of the fiscal arm of the government. They stated that the MTEF would be a sigh of relief from the one-sided drive of the economy embarked on by the monetary authority since the inception of the new government.

According to the investment bank­ing firm, federal government’s policy thrust is centred on implementation of policies to ensure fiscal stability, improve fiscal non-oil revenue, low­er inflation rate and ensure real sector growth. It stated that the projected doubling of domestic borrowing (mostly by is­suance of bond instruments) might likely trigger an upward re-pricing of yields in the fixed income market in 2016 given the anticipated increase in supply of fixed income instruments.

President of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, commenting on the budget said it looks quite promising, stressing its strong emphasis on infra­structure growth which shows that the future of manufacturing is bright.

“We believe that it is good, as in­frastructure is key for the real sector, as the industries would be able to thrive, and when this happens, they would be able to create jobs,” he said.

The MAN President also noted that the importance placed on agri­culture and mineral resources is like­wise commendable, bearing in mind the country’s policy on backward integration. According to him, raising the pro­file of the agricultural and mineral re­sources sectors would also be benefi­cial to the manufacturing sector, who could now be able to source its raw materials locally.

He said: “This would not only boost the sector, but would also aid the President’s project on job cre­ation, as there would be jobs in the manufacturing sector, agriculture, with all its value chain and the min­eral resources sector. In addition it would also reduce the pressure on the foreign exchange as the companies would now get more of their raw materials locally.”

The Lagos Chamber of Com­merce and Industry (LCCI), in the same vein noted that despite the fact that the details of the budget are yet to be released, the highlights are in­structive.
The Director General of the Chamber, Muda Yusuf, commended the President for prioritizing spend­ing in favour of capital projects.

The Chamber said that the capital allocation moved up to 30% of total allocation as against 15% in the pre­vious budget mean better focus on the current high and disturbing deficit in the nation’s infrastructure, stating that infrastructure is critical for job creation and economic diversifica­tion.

The Director General considered the sectoral allocation as a good mea­sure to diversify the economy and create jobs, but said members of the OPS would wait for the details and implementation framework to assess the sustainability of the various prop­ositions and make informed com­mentary.

The Chamber however considered the debt service provision of N1.3 trillion as quite high.
“The provision for capital budget is N1.8 trillion while the sum of N1.3 trillion is earmarked for debt ser­vice. This is 72 per cent of the capital budget allocation. We need to worry about the amount of resources we are committing to debt service, especial­ly when there is very little to show for these debts. Of course, outstanding obligations must be settled, but going forward there is needed to review our debt management strategy to reduce the burden of debt service on the economy”, Yusuf said.

He also called for the review of the exchange rate assumption of N197 to the dollar, which he said is not in tune with the current realities of the foreign exchange market.

“It will understate the revenue ac­cruable form the foreign exchange surplus form the CBN to the federa­tion account”, he warned.

Yusuf said the promise by the President that the current forex pol­icies and exchange controls of the CBN will be reviewed is laudable, adding that such review was long overdue bearing in mind the disloca­tions that the exchange controls has caused many investors, foreign and domestic.

On the budget stance on the petro­leum sector, the LCCI said the Presi­dent alluded to the petroleum down­stream sector in a rather ambiguous manner. He said: “There was no clear pronouncement on whether the petroleum downstream sector will be deregulated or not. There was a men­tion of a review of pricing template by the PPPRA. We await the details of the template and what implications it will have for the private investors in the petroleum downstream sector. I will reiterate that the downstream sector of the petroleum industry be fully deregulated in the overall inter­est of the Nigerian economy and the change agenda of the present admin­istration.”

Managing Director of Managed Healthcare Services Limited (MHS), Dr. Patrick Korie, while commenting on the budget said that a well up­graded healthcare system and well equipped facilities with robust infra­structure will put an end to medical tourism in the country.

He praised the federal government for allocating N221.7 billion to the health sector saying this will create access to drugs, medical facilities and right personnel for the health sector. According to him, factors like inadequate medical equipments and right personnel, and also inadequate infrastructures have greatly contrib­uted to the abysmal state of Nigeria’s healthcare sector, and it has in turn made the people lose confidence in the sector. He was optimistic that if the right infrastructure, together with the right healthcare personnel and adequate drugs are provided, people will have faith and confidence in public health institutions and struc­tures, which would enable them to receive treatment.

He said having a physical structure called health care facilities does not automatically translate to medical healthcare facilities. He added: “The healthcare industry want health care facilities from primary to tertiary lev­el that are functional and what it takes to be functional is to have the nec­essary equipments, the manpower and environment to ensure that they work. If you have the equipments, the manpower in place and you don’t have the necessary environment to make them work; it will still not work.

So, these things once they are put in place within the budget to ensure that when people walk into a hospital, require any treatment, they get that treatment that is comparable to what is optioned in any other part of the world. So infrastructure development is very important,” he added. (Sun)