2019 Budget: Why Nigerian economy may be under pressure

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Zainab Ahmed, Minister of Finance, Nigeria

When the National Assembly transmitted the N8.92 trillion 2019 Appropriation Bill to President Muhammadu Buhari on Thursday May 9, many Nigerians expected the president to attack the lawmakers over the increment in the budget. As expected, Buhari castigated them for tinkering with the document.

The lawmakers increased the budget from N8.83 trillion presented by Buhari to N8.916 trillion. They attributed the increment to the need to provide for the severance benefits of outgoing lawmakers, their aides, provision for the National Assembly orientation programme, election and others.

But the president while signing the budget on Monday, May 27, said the adjustment might affect the smooth implementation of the budget. Buhari said he only signed the bill because he did not want to further slow down the pace of recovery of the economy. According to him, the addition of more than N90 billion to the N8.83 trillion he submitted to the legislature would make it difficult for the government to realise its set objectives.

He, however, stated that the executive arm of the government would dialogue with the forthcoming ninth National Assembly so as to make life much better for Nigerians. “Of course, some of these changes will adversely impact our programmes making it difficult for us to achieve the objectives of the Economic Recovery and Growth Plan.

“Although I will be signing this bill, it is my intention to engage the National Assembly to ensure we deliver on our promises. “I will, therefore, be engaging with the leadership of the 9th National Assembly as soon as they emerge to address some of our concerns with the budget,’’ he said.

Likewise, Udo Udoma, former minister of budget and national planning, said the budget has a funding gap of N102.83 billion. Speaking during the public presentation of the approved 2019 budget on Tuesday, May 28, he said by increasing the size of the budget and reducing proposed borrowing, the National Assembly created the unfunded deficit.

According to him, executive revenue assumptions were generally approved and adopted by the National Assembly except for unexplained increases totaling N31.5 billion on some non-oil revenue lines. “National Assembly increased the budget size from N8.83 trillion to N8.92 trillion, translating to an increase of N90.33 billion.

“This has resulted in an overall increase of N58.83 billion in deficit. Inexplicably, the National Assembly reduced the proposed borrowing from N1.649 trillion to N1.605 trillion, thus creating an overall unfunded deficit of N102.83 billion. To fully fund the budget, the level of borrowing may therefore have to increase,” he said.

Udoma said the overall budget deficit was N1.918 trillion as against N1.859 trillion in the executive proposal, representing 1.37 percent of the Gross Domestic Product, GDP. He added that the deficit would be funded mainly by borrowing N1.605 trillion split equally between domestic and foreign borrowing.

According to him, allocations for some executive projects based on critical appraisals and linked to the Economic, Recovery and Growth Plan, ERGP, has been reduced and a large number of new projects, mainly constituency projects have also been introduced.

This is not the first time Buhari and his team are blaming or trying to instigate Nigerians against the lawmakers. It could be recalled that on June 20, 2018, when the president signed the budget, he told Nigerians to hold the National Assembly accountable if his government fails to meet the set objectives of the budget.

As the president looks for soft landing for his actions and inactions, economic indicators have shown that the economy is in crisis. The recent Gross Domestic Product, GDP, and April inflation reports released by the Nigerian Bureau Statistics, NBS, point to the fact that all is not well with the economy.

Even Godwin Emefiele, Governor, Central Bank of Nigeria, CBN, has warned that the country might slide back into recession if measures are not taken to tackle the high rate of unemployment. According to NBS, the unemployment rate stands at 23.1 percent as at 2018. Speaking in Benin, Edo State, Emefiele said the country has made progress in the year under review, but more efforts should be made to reduce the country’s unemployment rate.

“From some of my concluding remarks, you may have observed whether you like it or not that there is global uncertainty that will unfortunately, most certainly, lead to another crisis. The question could be: how are we as Nigerians, particularly our leaders – I am talking of Monetary and Fiscal Policy Authority – preparing our country for the next set of crisis?

“We have luckily exited recession; we have seen inflation bending downward to about 18.72 percent in 2017 and today about 11.37 percent. We have seen reserves moving up, but unfortunately, we still have issues and those issues bother around unemployment rate and those issues bother around how we prepare our country,” he said.

But instead of Buhari and his economic team strategising on how to avert the impending economic crisis, they are busy debating the performance of 2018 budget and capital releases for the budget. While Udoma put the exact figure of capital releases in the 2018 fiscal appropriation at N1.55 trillion as of May 8, Zainab Ahmed, former minister of finance, claimed that as of May 14, the federal government had released N2.079 trillion for capital expenditure.

While she agreed with Udoma that N3.96 trillion was realised as actual revenue from the 2018 budget, Ahmed disagreed on the actual capital releases so far. “We, federal government, have also released seven months overhead for 2018, two months for 2019, and N2.079 trillion capital expenditure as at 14th May 2019,” she said.

As the controversy over 2018 budget performance rages, economic experts are worried that if Buhari fails to appoint ministers in the next couple of weeks, the economic gains in the last two years may be eluded. Eze Onyepere, lead director, Centre for Social Justice, has expressed worry over the inability of the government to meet up with its revenue projections.

“I see a central challenge in the realisation of the revenue needed to implement the 2019 budget against the background of the revelation that only 55 percent of the 2018 projections were realised. This follows the trajectory in previous years where the federal government consistently failed to realise budgeted revenue. We are worried that despite the price of crude oil selling above the benchmark price in the last couple of years, we have hardly met the production target of 2.3 million barrels a day.

“The recent disclosure that the country produces less than 2mbpd falls in line with the trajectory of this challenge. The dominance of oil in the revenue profile as well as the relatively meager revenue expected from the non-oil sector compounds the revenue challenge,’’ he said.

David Ibidapo, financial analyst, is optimistic that the budget will bring about an improvement in the nation’s Gross Domestic Product, GDP, in the second quarter. According to him, it will bring about increased spending and economic activities to improve the economy.

He said the signing of the budget would also provide a policy direction for investors and boost their confidence in the stock market. Speaking on the concerns raised by Buhari over the additional N90 billion that was added to the budget by the National Assembly, he said the president would have to work out how to implement the budget, and actualise the minimum wage that was recently signed into law.

“The only way he can successfully implement the budget and actualise the minimum wage is to block leakages by removing things that are not necessary like oil subsidy. If oil subsidy is removed, it will be a huge relief for the government. The government should also try to boost revenue and if that happens, it will lead to more economic activities that would spur the growth of the nation’s economy,” he said.

But to Segun Ajibola an economist, the low allocation of capital expenditure in the budget shows that the economy is under pressure. He said the cost of governance is high and it is making the capital expenditure to drop.

“We have a lot of pressure on the budget, we have debt to service, it is the capital budget that will bear the brunt. I believe we will be able to moderate the allocation to capital budget by the time we generate sufficient returns from the investment from on-going projects. If we are able to recoup the initial expenditure on the projects, then the burden on capital budget will be down,’’ he said.

According to him, the implementation of the budget is feasible. He noted that the implementation of the budget is realistic with the key assumptions and the expectations. He said the senate maintained key assumptions of the Medium Term Expenditure Framework and the Fiscal Strategy Paper sent by the executive.

“Daily Oil Production stood at 2.3 million barrels per day, Oil Benchmark stood at 60 dollars per barrel, while the Exchange Rate stood at N305 per dollar. The 60 dollar per barrel was sufficient conservative as we pray that there would not be any change of price at the global market.

“The exchange rate of N305 per dollar is also okay. I believe that eight months is enough for the budget to be fully implemented and to reap its fruits,” he said.

On his part, Samuel Nzekwe, former president, Association of National Accountants of Nigeria, ANAN, said if the budget is judiciously implemented, it would attract foreign investors into the country. “Honestly, people will see positive changes if the nation’s budget could be implemented to the letter, “he said.

Nzekwe urged the federal government to intensify efforts in ensuring that signing of annual budget was returned to December and January circle. He called on the government to critically look into allocations given to education, health and infrastructure development, particularly power.

“The nation needs human capital development to drive the economy and the only way this could be done is to allocate more funds to education. Health sector needs good allocations to get it working well and deliver better services to the people.”

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