The passed budget, and challenges ahead

President Buhari presented a budget proposal of N6.07 trillion on December 22, 2015, and after necessary amendment and deliberations by the National Assembly, the budget eventually got the nod of the legislators. The Nigerian budget was finally passed on Wednesday, March 23, 2016.

The passing of the budget is a big relief to the Nigerian economy. Although long overdue, strategic implementation of the budget and effective communication of its economic policies would certainly result in stimulating economic activities in the country. The decline in economic activities experienced in past months, was to a reasonable extent, partly due to the fact that the Federal Government, usually the highest spender in every economy, was not spending due to the delay in passing the budget.

With the appropriation of over N6 trillion, the government can achieve a lot if the budget is implemented with adequate fidelity. Challenges of budget implementation in the past include:
1. Fiscal discipline,
2. Allocative efficiency and
3. Operational efficiency.

Fiscal discipline refers to the ministries or agencies’ ability to function effectively within the budget towards the actualisation of budget objectives. It is necessary to put in place a robust computerised system of monitoring and control, and also ensure that acceptable targets and KPIs are set for each ministry. The instituted system would be utilised to ensure performance evaluation.

Allocative efficiency entails prioritisation process of the budget implementation. According to the just concluded National Economic Summit, the Federal Government highlighted amongst others: Agriculture, Solid Minerals, Infrastructure development and Industrialisation and Investment as its areas of focus. Thus, the budget should be put to its most productive use through capital rationing in order to achieve significant results in these areas of priority.

The third critical challenge as earlier specified is operational efficiency. This refers to ensuring that the maximum level of output is achieved within the allocated budget. It entails consistency with the fiscal discipline towards ensuring performance of ministries at the optimal level. Each ministry should create special forums that would assist in setting up execution plans and procedures in order to produce optimal output within their limited resources without compromising quality and efficiency.

Furthermore, there should be more cohesion in both Fiscal and Monetary Policy. My curiosity was aroused by the recent increase in the Monetary Policy Rate by the Central Bank from 11% to 12% in response to the surge in inflation rate that was recorded last month. I opined that rather than increase in money supply in the economy, the inflation surge was majorly due to the impact of the high dollar exchange rate against the naira in the parallel market. Many importers funded their purchases at this high dollar price, leading to the eventual surge in inflation rate.

The decision of the Monetary Policy Committee to increase both the Cash Reserve Ratio (CRR) and the Monetary Policy Rate (MPR) depicts a restrictive monetary policy. These are not appropriate measures in a depressed economy that is yearning for breath of survival; coupled with the governmental drive to strengthen the real sector. What the economy needs are expansionary measures that would support government spending from the approved budget in order to stimulate economic activities.

On revenue generation and fiscal stability, the need to speed up efforts to generate relevant data at the top two tiers of government cannot be over-emphasised. Strategic initiatives to ensure effective taxation by improving tax collection systems, widening the tax net via bringing in more corporate institutions into tax compliance and systematic tax audit should be explored. However, this must be supported by effective utilisation of tax revenue evidenced by specific areas of economic development.

The Capital Market is expected to be positively impacted by the approval of the budget. The overflow effect of government spending on disposable income, savings and consumption would impact the turnover of quoted companies and boost corporate earnings to the interest of shareholders, and the investing community.

Also, government proposed investments in infrastructure development such as power, transportation, etc, would assist in reducing the high operation costs of many quoted companies, and ,therefore, boost gross margin. This could enhance foreign indirect investments by re-awakening the interest of foreign fund managers in the Nigerian Capital Market.
• Oyekunle is CEO, Finawell Capital Limited, Lagos.