Budget 2016: From Hope to Despair?

With the controversies that surrounded the passage of the 2016 budget, the implementation of this important fiscal policy document whose signing was trailed with so much optimism might be a mirage owing to the worsening economic climate, writes Obinna Chima

With exactly 164 days to the end of 2016, there are clear indications that implementing Nigeria’s budget, the single most important policy document for planning by government may be a mirage.

This followed recent comment by the Secretary to the Government of the Federation (SGF), Mr. Babachir David Lawal that the N6.06trillion budget for this year will only be partially implemented as a result of revenue shortfall. He had blamed the decline in economic activities on the militant group, the Niger Delta Avengers, which has claimed responsibility for the wave of attacks on oil installations in the oil-rich region.

Indeed, the signing of the ambitious budget by President Muhammadu Buhari in May this year was greeted with so much hope, with the expectation that it would help pull the nation out of the brink of recession. Nigerians expected that the proposed N350 billion quarterly injections by way of capital projects that was disclosed by the Finance Minister, Mr. Kemi Adeosun, would be done immediately, so as to help stimulate economic activities and reflate the economy. But this and most other projections in the 2016 budget are yet to become realistic as they still remain mere wishes.

Igniting Hope
After several months of controversy, the president had in May finally signed into law the 2016 Budget. Buhari had said it gave him great pleasure to sign the first full-year budget of this administration into law.
“As I said in my New Year message, living in the State House does not in any way alienate me from your daily struggles. I read the newspapers and listen to the TV and radio news. I hear your cries. I share your pains.

“The Budget is intended to signpost a renewal of his government’s commitment to restoring the budget as a serious article of faith with the Nigerian people. 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,” Buhari had said.

He added: “The signing of the budget today 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 that despite the current difficulties, his government would work extra hard to achieve his revenue projections.
Buhari said: “Our revenue generating agencies are coming under better management and are being re-oriented. The implementation of the Treasury Single Account (TSA) is expected to contribute significantly to improving transparency over government revenues.

“We are experiencing probably the toughest economic times in the history of our nation. I want to commend the sacrifice, resilience and toughness of all Nigerians young and old who have despite the hardships continued to have hope and confidence of a great future for Nigerians.”

Desperate for Funding
The finance minister last month led a team of officials to meet bond investors in London in government quest to raise funds to finance the budget. Tapping the offshore bond market this year is crucial for Nigeria to fund the budget to stimulate the economy. Nigeria is also trying to raise dollar debt from the World Bank and the African Development Bank, the Eurobond market has taken on added importance.

The federal government had said it decided to opt for offshore borrowing to finance a major part of the N2.2trillion deficit in the 2016 budget so as not to crowd out the nation’s private sector.

The Minister of Budget and National Planning, Udoma Udo Udoma, had stated that the borrowing was to be raised roughly equally from domestic and foreign sources. The deficit is to be financed mainly by borrowings projected at N1.84trillion, with the local component standing at N984billion and N900billion from international sources,

“We have decided to source from international sources so as not to rely exclusively on domestic borrowing, which may have the effect of crowding out the private sector Furthermore, we are optimistic that we may be able to access some of the foreign loans on a concessionary basis. The Ministry of Finance is currently negotiating with multiple sources to secure the external financing,” Udoma had said.

Bitter Truth from the SGF
Lawal disclosed that the federal government’s earnings had declined by 40 per cent as a result of the drastic fall in oil prices, as well as the persistent attacks on oil installations in the Niger Delta. Against this backdrop, he said the N6.06trillion budget for this year will only be partially implemented.

The SGF who said this while appearing before the Senate over a comment credited to him that the federal government would not implement constituency projects as provided in the 2016 budget. But Lawal explained that the oil benchmark of $38 per barrel set by the federal government in the 2016 budget had not been effective in view of the protracted attacks by militants on oil installations. He also disclosed that the nation sometimes produces as low as 800,000 barrels per day.

When asked if he indeed said constituency projects would not be implemented this year, Lawal did not mince words, insisting that the problem was not exaggerated.

“We cannot guarantee the implementation of constituency projects in the 2016 budget. As a government, constituency projects are championed by members of the National Assembly. Like the legislature, members of the executive are politicians who canvassed for votes.

“Lawmakers are aware that oil production has dwindled to about 800,000 barrels per day. This has led to the inability of government to finance the budget. It is the duty of government to prepare the minds of Nigerians ahead that there will be challenges in implementing the budget,” he had said.

He added, however, that funds would only be released for the implementation of major projects this year, stating that the situation had forced the government to set new priorities for its policies.

“Government based its funding on zero budgeting this year. Funds will be released to finance key projects in line with the implementation plans of the government. I will explain why it will be hard for the government to implement the budget.

“Some ministries, department and agencies (MDAs) might find it impossible to implement projects appropriated in their budgets. We have to re-prioritise. I would like us to understand that this is the background upon which I made that statement,” he added. Lawal said he knew that members of the National Assembly would find his disclosure offensive, but insisted that the truth needed to be told and further disclosed that MDAs were currently facing challenges in implementing their budgets in view of the little funds available to them.

From Hope to Despair?
Commenting on the situation, the Director-General, West African Institute for Financial and Economic Management (WAIFEM), Professor Akpan Ekpo, said there is definitely a gap in terms of the way the federal government wanted to finance the budget. He also lamented the delay in its implementation, saying it might take the nation into depression.

Ekpo added: “I thought that they told us they were going to borrow externally? So, we need to know if the borrowing didn’t come through. Except they had a wrong projection when it comes to internally generated revenue. You know the benchmark for oil that they used wasn’t too correct and that may be a problem. Oil price has increased marginally in the last few months.

But the quantity Nigeria is exporting is not the same because of the activities of the Niger Delta Avengers. “So, they have to be very careful because if they don’t implement about 85 per cent of the budget this year, then the country may go into depression. Now, we are moving towards a recession and if they don’t find ways to finance the budget and do more, then we are going to have serious problem.”

Furthermore, Ekpo advised the federal government to raise the Value Added Tax (VAT), by just one per cent, saying raising it higher or imposing addition tax on Nigerians might be too hard for Nigerians to bear.
“Also, we were told that the recovered loots are in trillions, why can’t we use that to finance the budget? So, even if the budget is to be implemented 100 per cent, it would help and may not stop the recession. But to now say they don’t have money to finance it, then it means we are heading into a recession.

“I am not happy that they are very slow in implementing the budget. It seems like they are not taking the crisis serious. They delayed in passing the budget and now they are delaying the implementation. This is the time we must avoid delays, because it causes more problem to our economy. They just have to fast-track the implementation,” he added.
Also, the Chairman, Polar-Afrique Consulting Limited, Dr. Chris Itsede, pointed out that if any fundamental disruption affects the revenue flows of any budget, the expenditure component would also be affected.

According to him, the collapse of crude oil prices and the reduction in the quantity of crude oil exports as a result of the insecurity in the Niger Delta region are two things that would definitely affect the revenue components of the budget. Itsede argued that regardless of how much borrowing the federal government intends to do, it is not likely that the government can fill the deficit gap in the budget.

“That is because the budget came as a massive deficit budget, the highest deficit budget of the country since independence. So, even if all the revenues come in, we are still going to borrow to finance the budget. So, the meaning of what the SGF said was that unless there is a miraculous rebound in crude oil prices –you know oil market is very volatile; or secondly if we are able to find an amicable solution to the Niger Delta problem. These are two ways that may see us achieving our revenue projections.

“So, if things remain the way they are presently, definitely there is no way the budget can be implemented as proposed. So, what should happen is that the executive and the National Assembly should sit again and look at the situation and prioritise in the light of the dwindling revenue profile,” he explained.

On his part, the Chief Executive Officer, RTC Advisory Services Limited, Mr. Opeyemi Agbaje, said it had always been obvious that the 2016 budget would have issues of implementation. He said he had always queried the assumptions of the budget.

“I have continuously said that the budget assumptions have question marks. How the deficit was going to be financed was not so clear. People and analysts in the oil industry have always made the point that the assumptions about, not just crude oil price globally, but Nigeria’s oil revenue base. Of course, your revenue projection is oil price minus your cost of production.

“And every expert in the oil industry I had spoken with had indicated that the assumption both from the petroleum profit, taxes from the oil sector, all appeared optimistic. Even the assumption for Customs duties, taxation, etc, in view of the declining economic activities, were also very doubtful. So, it was inevitable that the government was going to have challenge with this budget.

“For me, the question is why now, about five months to the end of the year that what was obvious in January or February is now being admitted? So, for me it raises questions about our economic policy and management,” he argued.

Cyprus-based research analyst FXTM, Lukman Otunuga stated that Nigeria’s first quarter government revenues for first quarter reached a paltry 55 per cent of what was targeted following on-going militancy in the Niger Delta, which has seen oil production decline to painful levels. According to Otunuga, the incessant declines in global oil prices already weighed heavily on the biggest economy in Africa, saying that the diminishing government revenues could rekindle concerns over a technical recession in the second quarter of the year.

“The pressure trickled onto the naira, which depreciated over four per cent against the dollar last Friday after the Central Bank of Nigeria relinquished the dollar at a weaker rate in an effort to boost market liquidity. Sentiment is slowing changing towards Nigeria and the on-going concerns over a slowdown in economic momentum could trigger a wave of risk aversion which punishes the Nigerian Stock Exchange,” he added.

The Managing Director/Chief Economist for Africa, Standard Chartered Bank, Razia Khan, stressed that the resumption of spending alone should go some way towards stimulating activity. According to her, while lower-than-expected revenue collection is a concern, the federal government still has some headroom for borrowing – which should allow it to smooth spending, even as it works on driving higher revenue mobilisation.

“For capital expenditure the FG has stated that it would seek to borrow more externally. It can certainly kick-start projects with current resources, while it finalises plans to borrow on external markets. There is also around USD 3.5 billion of financing potentially available from the World Bank and African Development Bank – so cyclically-low revenue collection should not be a binding constraint on the ability to ramp up investment and stimulate growth.

“It is important however that further efforts to drive faster revenue generation are seen – as this will influence the terms at which Nigeria is able to borrow from international capital markets,” she said.
But the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, noted that for a country that planned to spend N6trillion in six months, when it was supposed to have spent in 12 months, there definitely was going to be a problem.

London-based Economist at Exotix Partners LLP, Alan Cameron, also stated that the underperformance of revenues is fairly common for Nigeria, saying that given recent issues affecting oil production, it would not be a surprise for the market.
“We would also argue that the influence of public spending is generally overstated: N350 billion quarterly in an economy with output of N20- 25 trillion is not a huge sum,” he added.

Clearly, government budgets help in reallocation of resources, reduction in income inequalities, economic stability, management of public finance, among others. The foregoing therefore implies that failure to implement the budget to a satisfactory level could mean that Nigeria’s economic situation may worsen with Nigerians made to go through more hard times.