How 2016 budget was built on weak assumptions
• All Six Economic Assumptions Underperformed
• It’s Mere PR Stunt, Says Utomi
As at the 4th quarter (Q4) of 2016,the six key economic assumptions used in drawing up the 2016 budget have failed to hold sway.The six assumptions or targets which were used as benchmark for drafting the 2016 budget have largely fallen short of results anticipated by forecast for the year, The Guardian can confirm.
One of the assumptions in the 2016 budget, which failed to perform is the pegging of daily production of crude to 2.2million barrels per day (mbd). On the contrary, the reality has been that daily production of oil has oscillated between 1.5mbd to 1.9mbd,creating a wide differential between revenue expected and actual income.
The second failed assumption, which failed to boost 2016 budget assumption is the exchange rate.The 2016 budget was predicated on N197 to a dollar.The situation on ground has proved the contrary as the true situation suggest that the naira now exchanges for over N400.
The third assumption in the 2016 budget that has failed is the level of inflation. Through out 2016, inflation remained high with an unexpected month-to-month rise pattern. Whereas, crafters of the 2016 budget pegged the inflation rate at 9.81% at the peak,as at October,the rate of inflation had climbed to double digit high of 18.3%.This situation,experts say is in connection to the quantum of money released into the economy by the Federal Government in an attempt to reflate the economy through capital project expenditure.
Fourthly, whereas, the Federal Government anticipated that the price of crude will be $38USD/barrel as captured in the 2016 budget appropriation, volatility in the world price has forced down prices to all time lows of between $20 to a little above the margin. However, market volatility has again resulted in gradual rise in world crude price to $50USD/barrel recently, after steady lows in the 1st, 2nd and 3rd quarters.
Although the Federal Government predicated the 2016 GDP growth level to be 4.37% in this year’s budget,there has in the contrary been a sustained negative growth pattern in the economy across the year. The economy has witnessed major contractions in the 1st, 2nd, and 3rd quarters of the year.
In the 1st quarter of 2016, GDP growth shrank by -0.36%, followed by another negative growth of -2.6% in the 2nd quarter, whereas in the 3rd quarter negative growth continued further to -2.24%.Also, fiscal deficit-to-GDP ratio as captured in the 2016 budget is 3%, but as at Q3 of the year under review, the borrowing rate has risen higher.
According to the Federal Government, the 2016 budget was designed to among other things, reflate the economy through government expenditure-led growth strategy to deliver inclusive growth to Nigerians, create jobs, cater for the poor through social protection funds, preventing shocks in the economy, as well as, engender efficient public financial management and reduce cost through blockage of leakages.
In a reaction to the development The Guardian spoke with some experts. For instance, political economist, Prof Pat Utomi told said the phenomenon of failed budget estimates is not new in Nigeria, saying that it is a development that reflects poor planning and budgeting capabilities. He said the problem is a sign of absence of rigourous economic planning and structures to achieve precision.
“Budgets and budget figures are actually instruments of public relations exercise in Nigeria. The budget is not actually designed to be an instrument of planning. This is because the public sector lacks the vigour, seriousness and key competence to achieve precision and engender growth. We don’t take the budget seriously. The budget as we know it today is simply the reflections of the whims and caprices of the people in power.
“Our dependence on oil has made high level of uncertainty in the 2016 budget inevitable. This is why you have high level of abandoned projects all across the country. This ought not be so. True budget and planning processes have been abandoned in Nigeria since the last 15 years or so. The attempt in 2016 by government to come out with all kinds of targets is really of no meaning because the whole budget process was not designed to be precise or meaningful from the start. Its just a PR stunt. An annual ritual so to say,” Utomi said.
He added that since Nigeria depends heavily on a volatile revenue source, what government ought to do is to evolve a mechanism for constantly adjusting the budget based on volatility.
Also reacting, Eze Oyekwere, Lead partner, Centre for Social Justice, while speaking with The Guardian on the issue, described the development as the result of insufficient planning. He, however, said that the 2.2mbd output target would have been realisable if the Federal Government had not made certain policy statements.
“What actually happened is that government did not plan sufficiently for the 2016 budget based on empirical evidence to be able to know the trajectory of future economic indicators. You can also see that repeating itself in the 2017 budget that will shortly be in the National Assembly. They are proposing a budget of 7 trillion in 2017 budget. Where are they going to get the funds? I’m not saying 7trillion budget is bad, but the question is, what lessons have been learnt from the past and what is the guarantee of diligent allocation of resources,” he said.
Also, Business lawyer, Olisa Agbakoba, in a telephone chat with the Guardian said that the development does no one any good as according to him, if the 2016 budget assumptions have all been wrong, then little wonder the performance of the economy so far.
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