Budget: After a Long Delay, Implementation is Key

Economic activities are expected to pick up with the implementation of the budget

Having been hit by hardship caused mainly by the controversy that bedevilled the 2016 appropriation bill, which led to the delay in its passage into law, the general expectation of Nigerians is optimal implementation of the budget for full impact, writes Kunle Aderinokun

The hue and cry over the 2016 appropriation bill ended when President Muhammadu Buhari assented to it the penultimate Friday. But what is pertinent now and which is the concern of Nigerians is the faithful implementation of the budget estimates that have become law.

After four months, Buhari signed into law the appropriation bill of N6.06 billion aggregate expenditure, which was N20 billion lower than the N6.08 billion proposed by the Federal Government and sent to the National Assembly in December 2015.

Just like the proposed budget, the final estimates were predicated on $38 per barrel oil-price benchmark and 2.2 million barrel per day, despite the downturn in the prices of crude oil at the international market. The final figures after passage by the legislature are : Recurrent expenditure, N2, 646,389,236,196; Capital expenditure, N1, 587,598,122,031; Fiscal deficit,N2, 204,936,925,711.16; Statutory transfers – N351, 370,000,000; Debt service – N1, 475,320,000,000 andDeficit/GDP – 2.14 per cent.

In signing the budget, which was witnessed by the Vice President Yemi Osinbajo; Senate President, Bukola Saraki; and Speaker of the House of Representatives, Yakubu Dogara, Buhari said, the budget was intended to “signpost a renewal of his government’s commitment to restoring the budget as a serious article of faith with the Nigerian people.”

According to him, “this administration is committed to ensuring that henceforth, the annual appropriation bill is presented to the National Assembly in time for the passage of the Act before the beginning of the fiscal year.”

“Though the 2016 budget, aptly titled “Budget of Change, the government seeks to fulfill its own side of the social contract. The budget I have signed into law provides for aggregate expenditures of N6.06trn. Further details of the approved budget, as well as our Strategic Implementation Plan for the 2016 budget, will be provided by the Honourable Minister of Budget & National Planning,” he added.

Done with the signing of the budget into law, implementation is expected to commence in earnest. Buhari was optimistic that, the signing of the budget will “trigger concerted efforts to reflate the Nigerian economy, a key element of which is an immediate injection of N350 billion into the economy by way of capital projects.

“To illustrate our renewed commitment to infrastructural development, the 2016 budget allocates over N200 billion to road construction as against a paltry N18 billion allocated for same purpose in the 2015 budget.”

He said despite the current difficulties, his government would work extra hard to achieve his revenue projections.

Giving an idea of what to expect in terms of level of implementation, Minister of Budget and National Planning, Senator Udoma Udo Udoma, said: “Our aim will always be 100 per cent implementation,” the Minister of Budget and National Planning, Udoma Udoma, told State House correspondents after the President assented to the budget.

“We know we started late and we may not achieve it. But 100 per cent achievement is our aim. The budget is a law, we will try to implement it as quickly as we can,’’ he added.

Besides, Udoma presented a breakdown of the budget and unveiled the Strategic Implementation Plan for the budget.

According to him, the 2016 budget was designed to actively pursue macroeconomic policies and growth strategies that will reflate the economy by investing in key infrastructure and social development.

He pointed out that it was anchored on six pillars, including economic reforms, infrastructure, social development, governance and security, environment as well as states/regional development.

The minister revealed that the government had earmarked N500 billion for social intervention projects. The social intervention projects, he noted, are in five areas, including job creation, school feeding, conditional cash transfer, enterprise programme, and STEM education grant.

Udoma enthused that “the plan will place the economy on the upward trajectory as it is repositioned for change, inclusive growth and sustainable development.’’

However, economic analysts and observers have their views about the budget and its implementation.

Former managing director of Guinness Nigeria Plc, Seni Adetu, said Nigerians had never experienced the kind of economic hardships they witnessed recently, said to have brought on them by the delay in presidential assent to the budget.

He therefore said, given this scenario, “we expect the economy to be reflated resulting in the boosting of disposable income and thus spending power, increased aggregate consumer demand, healthier businesses and potentially more jobs.”

“Furthermore, I fully expect to see an improvement in investor confidence – home and abroad – with its multiplier effect on the economy, “ he added.

Stating that, “In terms of specifics, the final figures are not too different from what was sent to the National Assembly and at N6.06 trillion, we have a sizeable budget for the year,” Adetu enthused that, “It is heart-warming to note that a reasonable 30 per cent of this budget is provision for capital expenditure – a massive increase vs. previous years of single digits – and the setting aside of N200billion for roads particularly makes my day.”

Pointing out that, the most important thing was “flawless implementation,” he said,” I understand a monitoring and evaluation framework has been put in place – that is very encouraging. “ “I do not think we should set ourselves the target of a 100 per cent implementation given that almost half the year is gone, but at the same time, we need to be fleet of foot. For me, the killer deliverable is ensuring quality implementation and blocking all potential leakages,” the chief executive submitted.

In the same vein, Managing Director of XDS Credit Bureau Ltd, Mobolanle Adesanya, hoped the budget translated to the change that it was prepared to bring because the delay in its passage had put a lot of pressure on the economy.

She however informed that “in examining the 2016 budget and implementation, one must start by examining economic metrics such as exchange rate, revenue, inflation and unemployment. In the last 12months, the CBN has devalued the naira twice, the task then becomes how to stabilize the exchange rate and currently Nigeria suffers a shortage of FX supply.”

Adesanya added: “Again considering huge import dependence of the economy, there is need for local production and consequently reduced dependence on oil revenues especially at a critical time when the price of oil experiences year on year decline, consider 2014-2016, prices had decrease by 16 per cent from 2014 to 2015 and 42 per cent from 2015 to 2016 and daily production also suffers significant decrease.

Inflation has consistently been on the increase in 2015 from 8.2 per cent in January to 9.4 per cent in November 2015, which was caused partly by depreciation of the naira and stringent foreign exchange policies.

“In November 2015, the CBN reduced the monetary policy rate (MPR) from 13 per cent to 11 per cent and also reduced the Cash Reserve Ratio (CRR) from 25 per cent to 20 per cent. These actions were expected to increase money supply and boost economic activities, however inflation hit double digit (12.8 per cent) in April 2016 due to increased money supply, and increase of imported items despite unavailable foreign currency. As such the government had to manage inflation through alignment of fiscal, monetary, trade and industrial policies.”

Consequently, Adesanya wondered if the budget, its implementation and effect address this critical and frightful metrics sustainably with careful consideration for long-term economic strategies.

To her, “pursuing an expansionary fiscal policy despite huge decline in revenues with a budget deficit that is to be financed principally through foreign and domestic borrowings is a clear indication that the final figures of N6.06 trillion are quite optimistic and extensive”

According to her, “A cursory look at the budget indicates that capital expenditure is proposed to increase by about 216 per cent from the preceding year, this should stimulate activities in the economic sectors and provide avenue for employment. Oil price decline also justifies the removal of subsidy on petroleum products, evidently the government plans to reduce over-reliance on oil revenue and reduce the country’s exposure to oil price volatility, by subsiding agriculture and boosting investment in solid mineral, such macroeconomic policies will achieve fiscal stability and non-oil sector competitiveness and as more goods are produced locally and exported, foreign exchange will likely improve.

The chief executive also said, “the government plans to increase borrowing to fund the huge budget deficit, debt to GDP ratio may increase to a proposed 14 per cent of the GDP which is adequate, compared to other countries in the world, on inflation the government intends to maintain current tax levels, however one can state that the budget is kind of stringent, and with reduced frivolous spending and job creation, the country might likely witness a single digit inflation in the long run.

“Clearly the implementation plan emphasises infrastructural development, job creation, diversification for reduced reliance on crude oil. All in a critical aim to stimulate growth in other sectors of the economy and this will ignite entrepreneurship.

Adesanya however, concluded that, “for the implementation of this budget to be effective and truly felt, it must impact in everyday lives of the common man and this can only be felt, if there’s availability of electricity, fuel, kerosene and also impacts into the cost of foodstuffs, transportation and living before one can truly say there’s a real change.”

In his own analysis, Executive Director, Corporate Finance, BGL Capital Ltd, stated that “it is not enough that the budget has been signed into law”, it must also be “implemented for impact.” He contended that, “since the problem with the Nigerian budget over the years is that of non-implementation, it follows that the 2016 budget is good, but only on paper.” According to him, “the entire country is waiting for its full implementation.”

Ademola, who described the budget of N6.06 trillion for 2016 as an “audacious” one considering the level of income expected from Oil which has been the mainstay, said with the plan to realise only about N820 billion from oil income, “I would have expected that the government would reduce the total expenditure for the year to match the low expected income.”

In addition, he pointed out, “an increase in capital expenditure from N557 billion to N1.85 trillion illustrates the audacious nature of the budget. And starting with a zero-based budget, which appeared to be programmed, the budget gives the government the opportunity to focus on the sectors of interest.

He, however, said he liked “the structure of the budget which gave 30 per cent to capital expenditure despite the very high content of debt repayment, adding that, “I am also impressed with the funding sources for each of the items.”

“Although only an income of N3.8 trillion is expected to be available to finance the planned expenditure of N6.06 trillion, the deficit of N2.26 trillion would be financed by a combination of debt and recoveries of looted funds. Specifically, the sum of N1.8 trillion would be through debt while the balance is expected to come from recoveries of looted funds.

“In other words, the expected income of N3.8 trillion from oil and non-oil and N446 billion from loot recoveries would be used for recurrent expenditure including statutory transfers and debt repayment while the borrowings of N1.8 trillion would finance the proposed capital expenditure. This is a very commendable feat as it meets the theory that debt-financed government spending can only be ‘sustainable’ where more of the resources are devoted to capital expenditures which provides import for the UK Golden Rule, constructed to ensure that government borrowing must be for investment only and not to fund recurrent spending,” he posited.

“It is expected of any government to prevent fiscal imbalances for a long period of time. While budget deficits are very appropriate in periods of economic slowdown or recession, government should have deficit reduction plan contained in a comprehensive fiscal policy programme; hence this 2016 budget and its plan of action is desirable,” he added.

To the Managing Director, Dunn Loren Merrifield Asset Management Ltd, Tola Odukoya, “the budget will add substantial tailwinds to the efforts being put in place to reflate the economy.” His view was “informed by the fact that the bill shows that the FG is looking to spend significantly in this regard.”