President Muhammadu Buhari |
Against that
backdrop, the proportion of realised revenue in the funds used to execute
federal budgets over the years may be deduced. The expended funds fall into
three broad categories: realised non-oil naira revenue, borrowings purported to
be within three per cent of GDP and FAAC naira allocations supposedly
ascribable to Federation Account (FA) oil receipts. Available official data
show the annual actual fiscal deficit to be below three per cent of GDP (it was
even 1.0 per cent of GDP in 2014). To use recent years, between 2006 and 2015,
annual economic growth rates averaged six per cent (the growth rate was eight
per cent in 2010). The above low fiscal deficit levels and robust growth rates
would be expected to have low inflation levels as accompaniment. On the
contrary, annual inflation averaged 10.8 per cent between 2006 and 2013 (the
average in 2014-15 is not significantly different). The upshot is yearly actual
fiscal deficit incurred far exceeded the official level claimed to be within
three per cent of GDP.
More
explicitly, the mix of funds expended on the budgets comprises (a) realised
non-oil naira revenue, which by definition, is non-inflationary, (b) borrowings
within three per cent of GDP that should keep inflation within that limit, and
(c) FAAC naira allocations supposedly ascribable to FA oil receipts. Hence, the
high inflation rates indicate that category (c) funds were a contributory
factor to raising the inflation level just like normal borrowings or deficit
financing. Note that the robust growth rates could not neutralise the
inflationary pressures induced by both categories (b) and (c) funds. Therefore,
like the category (b) funds, technically and economically, the category (c)
funds do not qualify as realised naira revenue.
Interpretation?
Firstly, naira and dollar amounts accrue to the FA, but gross revenue
allocation to the tiers of government is wholly in naira amounts. That is
because, as the CBN Press Release of March 1st, 2013 confirms, at the instance
of the Accountant-General of the Federation (read the President), FA dollar
allocations are withheld by the CBN and replaced with freshly printed naira
amounts. Such naira funds are purportedly the equivalent of the withheld FA
FOREX, which they are not. Just like their fruits designate trees, the naira
amounts procured from the CBN, being contributory to inflation with its
offspring, are designated economically as substituted deficit financing of the
budgets of FA beneficiaries. In other words, the tiers of government over the
years have been deprived of genuine and non-inflationary realised naira revenue
derivable from FA oil receipts.
Secondly,
from 1974 to 2015, the contribution of oil proceeds to the annual budgets on
paper exceeded 50 per cent. Thus, the full extent of actual fiscal deficits
incurred annually by the tiers of government combined is the sum of the
proportion of oil proceeds in the budgets plus any further borrowings within or
beyond the three per cent of GDP utilised in financing the budgets.
Consequently the fiscal deficit levels were excessive. Subjected to excessive
fiscal deficits, budgets fail to deliver inclusive growth and derail as
reactive policy measures aimed at combating the ensuing adverse effects such as
high inflation and macroeconomic instability only go to constrict and whittle
down the contribution to growth and development by the productive sectors of
the economy. In this connection, despite the projected reduced contribution of
FA oil receipts to the 2016 federal budget, the CBN deficit financing that will
be substituted for accrued oil receipts plus the anticipated borrowings within
or above three per cent of GDP will account for over 50 per cent of the budget
spending and so will continue to undermine economic revival.
Thirdly, the
notion of the country’s over-reliance on oil revenue is a lazy and preemptive
falsehood meant to becloud the actual economic problem that juts out before the
unbiased economic analyst. An oil-reliant economy, by definition, works and is untouched
by “polylemma” constraints associated with excessive fiscal deficits.
Accordingly, the blame for the various economic ills and shortcomings contained
in Section 6 of the 2016-18 MTEF&FSP should rest not on the purported
over-reliance on oil revenue but correctly on CBN deficit financing substituted
for FA oil receipts as already shown.
Fourthly,
the unrelieved CBN deficit financing funds substituted for FA dollar receipts
since the demise of the Bretton Woods system of fixed exchange rates in 1971
constitute an economic loan stream which, upon cumulation, would probably
exceed 100 per cent of GDP. It is, therefore, fallacious for the 2016-18
MTEF&FSP document to contain in Section 7 that “the country’s debt to GDP
ratio, which at 12 per cent is one of the lowest in the world, gives room for
fiscal expansion”. Though non-repayable from its inception except for the
latter-day begotten high interest-attracting and non-investable national
domestic debt, which the CBN wangled from sterilised mopped-up excess
liquidity, the long-running substituted CBN deficit financing has induced an
all-too-evident hostile production environment and other economic distortions.
And so the MTEF&FSP plan to “reflate the economy” ostensibly by further
printing money in an economic situation that the National Planning Commission
was wont to term overheated, is inane indeed.
In fine, the
Presidency, Ministry of Budget and National Planning and National Assembly are
the collective framers of the Medium Term Expenditure Framework and Fiscal
Strategy Paper, the successor to a long lineage of economic programmes that
reach back to the Five Year Development Plan (this ancestor programme succumbed
in the fifth stanza). The Presidency precipitated each programme’s untimely
death by causing FA oil receipts to be wrongfully substituted with toxic CBN
deficit financing. Moral? Economic principles rule the economy. Going forward,
once Buhari detoxifies budgetary spending attributable to crude oil receipt
(however modest the quantum today) by allowing FA beneficiaries to collect
dollar allocations by transparency-ensuring means in order to convert same as
and when desired to non-inflationary naira revenue through deposit money banks,
there will prevail macroeconomic stability and conducive economic conditions in
which the country’s currently largely idle resources will be more than adequate
to finance national economic revival and prosperity. (Source: Guardian)
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