The 2016 Budget of change (1)

ON Tuesday December 22, 2015 President Muhammadu Buhari personally presented the details of the 2016 Budget before the membership of the National Assembly. We congratulate the President for returning the quintessential aura and halo surrounding the Budget by personally taking the trouble to read out the text of the Budget to members.

This is reminiscent of the distant past during the period of Alhaji Abubakar Alhaji popularly called: ‘triple A’, the then Permanent Secretary, Ministry of Finance when Budget presentation was such a big, major event which commanded so much attention and respect. If you appropriately conceptualize the Budget, it is really a major event in the life of any country as it is a veritable blue print for husbanding the affairs of the country.

It is also quite remarkable the short time it took between the presentation and approval of the Medium Term Expenditure Framework (MTEF) and the conclusion of work on the Budget to be presented as it has now taken place. Each Budget comes with a title to it; for instance this has been dubbed: ‘Budget of Change.’ I personally have issues with this caption as change is part of our existential reality and therefore a journey rather than a destination as it would seem to be construed here by adopting this title.

I made a presentation at an in house retreat of a Bank in the Country based on the details contained in the MTEF when I took the liberty to caption the Budget as: ‘ Budget of Economic diversification, inclusive growth and job creation.’ And I thought this caption better captures the dilemma currently confronting the country in its unwholesome overly dependence on the oil market with all the related problems pertaining thereto. But as the saying goes: what is in a name?

What I intend to do in undertaking this review is to present the bare details of the budget drawing parallels from where we are coming from to ensure that all readers are on the same page as we make progress. Thereafter to isolate the major objectives of the Budget, assess the realism that underpinned the determination of the Budget’s key assumption and conclude the presentation by highlighting what makes the Budget different while expressing an opinion on the prognosis going forward.

This is a Budget of total expenditure of N 6.08 trillion up from 4.425 trillion in 2015 representing an increase of 37 per cent. The estimated revenue is N3.86 trillion. Comprised oil revenue of N820 billion while an estimate of N1.45 trillion is from non-oil sources and an amount of N1.51trillion is projected to accrue from other independent sources.

Therefore to the extent that we are able to implement this Budget, we must have come to terms with the reality that funding from oil has been marginalised as revenue from oil now consists of only 21 per cent of revenue and therefore signaling the country’s freedom from the strangle hold of oil.

Nigeria as a country is already diversified from the perspective of sectoral contribution to the Gross Domestic Product (GDP) as the oil sector only contributes 14 per cent while agriculture makes a lion share contribution of about 22 per cent which when considered alongside the potential of agriculture to contribute to the employment of our citizens makes agriculture the mainstay of the economy.

The deficit in Budget 2016 is of an amount of N2.2 trillion. And this deficit to rebase GDP is of the order of 2.16 per cent which is lower than the indicative threshold of three per cent as included in the Fiscal Responsibility Act 2007. Therefore, the country has some headroom to increase its borrowing from the perspective of this index. But when the deficit is considered alongside projected revenue, we have a disturbing ratio of 60 per cent which would seem to suggest that we have over leveraged.

It has been projected that a total amount of 1.87 trillion will represent the quantum of borrowing during the year. This amount is projected to be sourced: N 986 billion from domestic sources while the balance of 900 billion will be from external sources. There have been some uncomplimentary sentiments expressed in this regard questioning the capacity of the economy to absorb such quantum of borrowing and even the ability of fiscal authorities to raise this quantum of debt.

But we need to reflate the economy to jump start growth and the creation of particularly youth employment opportunities and therefore in our considered opinion, this is movement in the right direction. Informed opinion is of the view that borrowing is not the problem for as long it is from concessionary sources (below 3 per cent and for prolonged amortisation) and it is targeted on increased capital expenditure and not for consumption as it happened with Budget 2015 when the amount borrowed was in excess of the deficit contained in Budget 2015. It has also been observed and we concur that we should leverage on private capital for the execution of some of the capital projects through the platform of the Public, Private, Partnership (PPP) Scheme.

The fact remains that this country has some catching up to make in the area of the mobilisation of tax revenue. The country’s tax revenue to rebased GDP is 12 per cent against the benchmark target of 25 per cent which means that we have to triple our tax revenue to make the mark.

It is also a fact that in well managed economies, tax revenue is the only source for funding recurrent expenditure. There are also other numerous sources in the economy which we can also tap to generate foreign exchange particularly in the agriculture, solid minerals and gas sectors. There is therefore no doubt that if we get our act together, the funding gaps we are now experiencing would disappear and we would then only borrow selectively for critical capital infrastructure.

The sectoral allocations are incomplete and while allocations are indicated for recurrent and separately for Capital expenditure for some ministries, it was not so for others and there were no allocations for instance to agriculture, environment and solid minerals, etc. as per the details which the President presented.

The following allocations were included; Education N369 billion. (6%), Health 296 billion. (5%), Defence 428.6 billion. (7%), Interior 390.3 billion. (6%), Power, Works and Housing 866.4 billion. (14%), Special intervention 500 billion. (8%) and Transport 202 billion. (3%). We would expect that the missing details would be provided as the National Assembly performs diligently its oversight function prior to the approval of the Budget for implementation.

The objectives which Budget 2016 is aimed to achieve are to stimulate the Nigerian economy, make the economy more competitive by upscaling the provision of infrastructure. There is no doubt that it is appreciated by all stakeholders that making an economy competitive goes beyond the provision of infrastructure.

It is also critically dependent on the sanctity of contracts and general rule of law, safety of life and property and not the least of the considerations is the maintenance of macro-economic stability amongst other considerations.
• To be continued tomorrow.
• Dr. Boniface Chizea wrote from Lagos