BUDGET 2018: NAMING OUR PUPPY A LION

– An old Soviet era joke

“Dear Government… I’m going to have a serious talk with you if I ever find anyone to talk to.”

― Stieg Larsson, The Girl Who Played with Fire

Some people have come to see the budget as an annual ritual, some sort of formality which must be done every year. As Shakespeare would put it; it is something ‘full of sound and fury , but signifying nothing’. Most people in this category do not see how they connect with the annual budgets and care less about the numbers, the direction, the approval process, its implementation or lack thereof. You cannot blame such people as they are truly insulated from the budget environment. And it is actually possible to exist in this country from year to year without feeling the impact of the budget as we shall soon demonstrate.

The 2018 budget, in my opinion, is the most controversial budget in recent times. The controversy stems not just from the fact that it took over six months for the National Assembly to approve it, but also that what came out of the National Assembly, according to the Presidency, had little or no semblance to what was sent to it. The Presidency contends that the National Assembly “mutilated” the budget such that the proposal sent on November 7, 2017 which was N8.26 trillion was jerked up by N508 billion by the time it returned to the Presidency. The National Assembly also allegedly cut N347 billion in the allocations for 4,700 projects and introduced 6,403 projects of its own amounting to N578 billion. The Presidency also observed that the National Assembly increased its own budget by N14.5 billion from N125 billion to N139.5 billion. Some other instances cited by the Presidency includes that funds meant for Lagos-Ibadan Expressway, Mambilla Power Plant, Second Niger Bridge/Ancillary roads, the East-West Road, Bonny-Bodo Road and Itakpe-Ajaokuta Rail Project were cut by an aggregate sum of N11.5 billion. Again, allocation for the completion of the terminal building for the Enugu Airport was reduced from N2 billion to N500 million while about seventy new road projects found their way into the budget of the Federal Ministry of Power, Works and Housing, courtesy of the National Assembly, according to the Presidency.

The jury is still out on whether the National Assembly has powers to do what it did with the budget. While some opinions hold that the National Assembly has no powers to alter a document it did not originate, some others argue that the National Assembly should not function as a mere rubber stamp. This school of thought holds that the fact that the document has to be approved by the National Assembly in the first place, makes it imperative that the Assembly can approve, decline, reduce and add figures to the document at will. It is not the intention of this column to wade into that debate here, but it is our belief that the correct position lies somewhere between these two extreme views. We also believe that it would be helpful to seek judicial interpretation of the relevant sections of the law that have to do with this matter. The earlier it is done, the better we can lay it to rest. From a layman’s perspective, if it will cost N1million to build a house and same has been provided for in the budget, any attempt to cut the budget say by 50% simply means that either the house will not be built or it will not be completed, all things being equal. Again, if in the opinion of lawmakers, the house could actually be completed with N500,000.00, it will amount to irresponsibility to pass the budget of N1million just because it was sent by the executive. I am aware that this analogy could be too simplistic as the reality of budget adjustments by the National Assembly could be much more complex than this. Another dilemma that arises from tampering with the budget numbers, particularly increasing overall expenditure like was done in the 2018 budget is that the funding of the budget may become a challenge as the Assembly may not be adequately equipped to ensure that every kobo on the expense side of the budget is provided for on the revenue side. Be that as it may, the major and obviously perennial issue with our budgets is implementation. It is one thing to draw up and approve a budget. It is an entirely different thing to implement it eventually. As we shall see shortly, our budgets are such that even when they are fully implemented, they have little or no impact on ordinary Nigerians.

On June 21, President Buhari signed the 2018 budget into law. The budget size of N9.12 trillion represents a 23.6% increase in the size of the 2017 budget of N7.44 trillion. The budget has an in-built deficit of N1.95 trillion which is just 1.74% of GDP. On the face of it, this should be nothing to lose sleep over, given that according to the Finance Minister, Mrs. Kemi Adeosun, we are still the lowest amongst African Nations in terms of deficit to GDP ratio. While this ratio is useful for comparative purposes, we shall continue to contend that measurements like these mask the real issues as absolute GDP numbers say nothing about relative numbers like GDP per Capita which divides the GDP with the number of people in the economy. When this factor is brought into the equation, the conclusions will begin to tilt towards sobering reality.

Out of the deficit, borrowing of N1.643 trillion is envisaged. The borrowing is broken down into domestic debt of N793 billion and foreign component of N849 billion. According to the Debt Management Office, the foreign component would be funded by $2.8 billion, (circa N899 billion) Eurobond issuance within the year which would ramp up our external debt stock from $22 billion as at end of March 2018 to close to $25 billion when this bond would have been successfully issued. While this seems to be the only option open to us to fund the budget at this time, it is pertinent that we focus our attention on the debt service implications of piling up more debts and how it affects the country’s future. Besides, it had always been argued that foreign borrowing is cheaper than domestic borrowing. While this may be true, we should also be mindful that as the US begins to raise her interest rates,  all other rates across the world would begin to move in the same direction. This is particularly the case in the Eurobonds market. Of significance also is the foreign exchange risk as local currency depreciation remains an imminent possibility.

About 21% of the budget or N2.2 trillion is set aside for debt service. Since projected total revenue projection is N7.1 trillion, it also means that 31% of revenue will go into debt service within the fiscal year. This is actually a matter that should be of major concern to us. It stands without contradiction that if for some reason, we borrow more than we envisaged to fund the budget, this number will go up. It is a big drag on the budget and a threat to the economy. This speaks more to the issue of debt sustainability rather than the misleading argument about debt to GDP ratio. Like we had argued in the past, you cannot service debt with GDP. Debt can only be serviced with revenues. We must rein in this expense head if we must make progress with our much-desired economic transformation. Tied to this is the issue of recurrent versus capital expenditure. We seem to be stuck on the 70:30 rule. No matter how much we sermonise against this, we end up returning to it. Even though in the budget some progress was made, the actual result remains very minuscule. Capital expenditure of N2.87 trillion is 31.5% of the budget. That leaves recurrent expenditure at 68.5%. The level of infrastructural decay, which by the way, we have lived with for decades now, requires quantum leap adjustment from the 70:30 rule. A cosmetic 1.5% movement in the budget proportion will not cut it.  We had argued in previous interventions that according to published numbers, this country requires about $3 trillion in the next 3 decades to address her existing infrastructural deficit. Granted that the whole money may not come from federal budgets, it remains the responsibility of government to fund most of the infrastructural requirements or show the path towards bridging this gap. It goes without saying that this massive challenge cannot be solved by the rather timid approach we had chosen to adopt. The reality, therefore, is that the solution to this intractable problem is not in sight any time soon. So, dilapidated roads, moribund rail system, poor airport facilities, darkness, poor healthcare facilities will remain our companions for a while.

This year’s budget has been described as the largest that the country has passed. The figure of N9.12 trillion appears very large on the face of it. Again, there has not been any budget that was of that magnitude in the history of the country. However, if we factor in inflation at an average rate of 15% for last year, it would mean that the budget, which is nominally 23.6% higher than the 2017 budget would just be about 8% over that of last year. The most important factor that needs to be used to discount the budget, which analysts mostly ignore, is the population growth factor. This brings us back to Per Capita numbers. For instance, the budget estimates that the GDP would grow from N108 trillion in 2017 to N113 trillion ($371 billion) in 2018, representing a 5% growth rate. These numbers do not mean much if they are not related to the population. So with the assumption of N113 trillion GDP for 2018, what it means is that the GDP per head would be N570,000.00 or $1,870.00. Do not forget that according to the National Population Commission, our population has been officially put at 198 million people with an annual growth rate of about 6.5%. So, if we factor in annual population growth, then the so called increase in the budget numbers would disappear. Assuming for some reason, we decide to share the budget for 2018 equally and ask everyone to go and spend his own share, each Nigerian would get a little above N46,000.00 or $150.00. By our own admission of GDP Per Capita of $1,870.00, our position in the global ranking of GDP Per Capita for 2018 would be No. 147 out of 191 countries, just below Côte d’Ivoire at $1880.  Herein lies the reason why many Nigerians feel unconcerned about the budget, putting it in its basic simplistic form.

Sometimes, it helps to compare apples with apples and not with oranges. The table below will paint the picture in sharper relief.

From the numbers above, it is clear who is working and who is rather making claims. As we were grappling with these numbers, the World Poverty Clock of the World Data Laboratory in Vienna, Austria, came up with its current publication which surprises no keen analyst of the economy. It stated that Nigeria has overtaken India as the country with the largest number of people living in extreme poverty in the world.

According to the World Poverty Clock, over 44% of Nigeria’s population (about 87 million people) live in extreme poverty or more directly, below poverty line of less than $1.90 per day.

India, the country we displaced which used to have about 218 million people living below poverty line, has reduced the number to about 71.4 million people (5.3% of its population), pulling out close to 174 million people out of poverty. No matter what we say and I am sure some of us would like to engage the World Poverty Clock in an argument, recall our recent column titled “ I am Not Overweight, the Scale is Faulty”, India needs not only commendation, but emulation. 

This analysis would not be complete if we do not look at two other areas of the budget that concerns the people- Education and Health Care. According to the United Nations Educational and Scientific Commission (UNESCO) the minimum allocation to education for developing countries should be 26% of budget. In the 2018 budget, Education was allotted N542b representing 6% of the budget, meaning a shortfall of 20% of the recommendation. Health got N356b repressing a meager 4% of the budget, a far cry  from the recommendation of the Honorable Minister of Health to states to ensure minimum allocation of 15% of budget to the healthcare sector in State budgets. These appalling numbers complicate and exacerbate the already bad situation. 

My thought is that we need to sit down, stop making claims, stop boasting and tell ourselves some home truths about the fragility and shallowness of our economy. I believe we have enough honest people who understand these issues. It is only when we have admitted that we have a big problem that we can begin to think of solutions. The way we are going, we may just have a failed economy in our hands. And it can happen sooner than we are willing to admit.