The budget of hopes and dreams

BUDGET

It feels like déjà vu. At this point in 2015 the economy was already showing signs of serious problems. Growth had slowed from an average of about six percent in 2014 to just about two percent in the fourth quarter of 2015. The Naira was under pressure with the Central Bank taking the unwise decision to peg the currency at N199 per US Dollar even though it was already trading at around N250 per Dollar in the black market. The pressures in the forex market fed into the rest of the economy with price increases across the board looking likely. The pressures were perhaps epitomized by the government-controlled fuel markets where the then PMS price of N87 per litre looked increasingly unsustainable. Intermittent periods of aviation fuel scarcity, usually a precursor to PMS scarcity, were already prevalent.

Given the problems in the economy the Federal Government announced a record budget of N6.06tn, the largest budget in Nigeria’s history. The budget made very optimistic revenue targets of N3.86tn. VAT receipts were projected to double compared to the average for 2014 and 2015. Massive increases in CIT and customs revenue were also projected. All the revenue projections were dwarfed by a projected N1.5tn independent revenue. I still don’t know what independent revenue means but if you do please let me know. In short, the revenue projections looked like something crafted by someone who really believed in miracles.

The story did not end there. The budget proposed a record N2.2tn deficit to be financed partly from the domestic market and partly from foreign sources. There were plans of a Eurobond listing and borrowing for bilateral sources. The economists and errrconomists argued that the debt plans, especially from foreign sources would be unlikely given the price fixing in the foreign exchange market and the downstream oil industry. They also argued that the forex problems implied that the economy would not recover, which meant that the VAT and CIT doubling plans were unlikely to happen. The economists did not know what independent revenue was. Still we were hopeful.

We all know how 2016 turned out. The economy continued its collapse with the first recession in at least two decades confirmed. The hopeful revenue projections did not materialize. Oil output was hobbled by the militants in the Niger Delta. CIT, VAT, and customs duties were hobbled by an economy in recession. No one still knows what independent revenue is. On the deficit financing front, the plan to borrow from external sources failed completely. The Central Bank spent the first part of the year fixing the currency and the second part of the year lying to everyone that it wasn’t fixing the currency. All that meant whatever proposals Nigeria was selling, no one was buying. The proposed Eurobond listing is still missing in action. The plan to raise money from bilateral sources was mostly unsuccessful.

The failures on the revenue and deficit financing fronts meant that the Federal Government spent most of 2016 strapped for cash. So strapped that they tried to push all sorts of interesting ideas, such as the sale of national assets. In the end, it appears that they resorted to just taking cash from the Central Bank. A policy which has certainly played some part in rising inflation and effective interest rates.

So here we are in December 2016 and the scenario looks the same. The economy is still in recession. The foreign exchange market is still tactically fixed at N305 per dollar even though the naira is currently trading at around N485 per dollar on the black market. The currency problems are feeding into the economy with prices continuing to rise. The PMS pump price of N145 per litre is looking increasingly unsustainable with the traditional precursor to scarcity, aviation fuel shortage.

The budget proposal for 2017 also sounds familiar. The Federal Government announced another record budget of N7.298tn for 2017. The budget assumes levels of CIT, VAT, and customs duties similar to the 2016 budget. Recall that the 2016 budget assumed those would double and that failed to happen. The budget assumes independent revenue of N807.57bn, admittedly more realistic than the N1.5tn projected in 2016. Although we are still not sure what independent revenue is. Finally, the budget proposes another record deficit of N2.36tn, again to be financed partly from domestic markets and partly from external sources. The Eurobond plan that failed in 2016 has been pushed to 2017.

The 2016 budget looked overly optimistic and even though the signs for failure were there, we were hopeful that maybe the federal government could pull it off if they made the right decisions and got lucky. However, the 2017 budget is downright unimplementable. The revenue projections are unrealistic and the credibility problems at the Central Bank mean that no external source is going to look Nigeria’s way. The 2017 budget demonstrates that the Federal Government still has not learned from its errors in the past and have still refused to accept the reality that the Nigerian economy cannot feed it. As Albert Einstein once said; “The definition of insanity is doing the same thing over and over again and expecting different results.”
• Nonso Obikili is an economist currently roaming somewhere between Nigeria and South Africa and tweets @nonso2. The opinions expressed in this article are the author’s and do not reflect the views of his employers.

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7 Comments
  • Chinasa

    Great article nonso! Please, could you give full meanings to your acronyms so as to reach a wider audience next time. Acronyms like PMS, CIT, VAT should be properly broken down. For instance, I don’t know what CIT means in your context. Thank you!

    • Nonso Obikili

      Thanks. I had a maximum number of words to send in so had to abbreviate. CIT is corporate income tax.

      • Chinasa

        Okay! Clearer now. Please don’t drop your ink. It’s not easy to write… More grease!

  • kelvintops agho

    Great article Nonso…We seem to be lying helplessly in a hopeless despair and nobody cares not even the Government. Shall we continue in insanity mantra that sanity should abide, God forbid!.

  • William Norris

    Everyone in Nigeria seems to live on hope that they can make a nation without dealing with basic issues.

    The overwhelming percentage of local, state and federal revenue in Nigeria is sourced from the Niger Delta. Call it CIT or VAT or whatever, it all flows from Niger Delta resources.

    My question is this – when are other parts of Nigeria going to start contributing to the national purse?

    Why must this continue? How can a whole country be so unproductive that they can’t pay for their basic needs, so venal that they continue to kill, suppress and pillage one part of the nation to feed the rest? And everyone is OK with it.

    What a country! No hope at all.

  • Adedayo Jubril

    Nonso, I think you have join the bandwagon of overly optimistic people that cooked up this numbers, if you don’t know what independent revenue means, how can you say the 2017 figure is “admittedly more realistic”??? How can something that is from someone’s imagination be realistic???. No its not realistic because we don’t know what it entails. To be sincere, this government is running the greatest scam in history and it started before the first primary election vote was cast. A candidate that was not able to pay to obtain nomination ticket was paying school fees for two kids in UK university. The budget, the executive, the legislature and the judiciary are all scams.

    The above is not the scary story though. You see before in Nigeria we have the rich and somewhere way down the line we have a very tiny middle class and just below that is where the majority of the country are, the poor. However, recent events means the rich have pulled further away and as if that is not bad enough, the small middle class that used to support the poor majority are now either poor themselves or moving closer to it. what this epistle means is that the nation is getting to that boiling point.

    Firstly, crime will increase dramatically, then the society will get angrier as the poor fight withing themselves.

    Secondly, the poor who had been ignorant of the life of the rich will begin to notice the divide as it stares them in the face. This will result in resentment and breakdown of the mirage of law and order we currently have. The criminals will target the rich more and more.

    Finally, WAR will breakout.

    If you think I am wrong, then I dare you to point me in the direction of any nation who had experience the sudden surge in the number of idle youths we are experiencing that the situation did not eventually result in war.

    The painful part is, this type of wars don’t usually have any identifiable motive and will therefore be very difficult to end.

    Like that famous boys scout motto, be prepared.

  • marvix

    Article on point! But what do u suggest? Can we continue to tolerate this govt that is joking with our sensibilities? Does this govt deserve to complete it’s term or should it be shown the way out in a peaceful and purposeful impeachment proceedings??

    Anyone waiting for 2019 is seriously not following issues of this govt, it seems this govt has a deliberate plan to impoverish and pauperise Nigerians to a state of worthlessness!

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