As the nation awaits deliberations on the 2014 budget by the National Assembly, its emphasis on recurrent expenditure at the expense of capital development may make the job creation and growth strategy of the document a mirage, BusinessDay interactions with stakeholders have shown.
The history of previous poor budget implementations, they argue, is making the job creation and inclusive growth strategy of the budget a hard-sell.
The conservative budget of N4.64 trillion estimate, a decrease of 5.69 percent from N4.92 trillion in 2013, and total revenue of N3.73 trillion, 4.11 percent less than the 2013 revenue estimates of N3.89 trillion, surprisingly has the percentage of aggregate capital expenditure decreasing from 31.34 percent in 2013 to 27 percent in the 2014 budget.
Recurrent expenditure, on the other hand, increased from 68.66 percent in 2013 to 73 percent.
“We think it is ironic that a budget themed ‘Budget for job creation and inclusive growth’ proposes a lower capital expenditure in both real terms and as a percentage of the entire budget, knowing that growth would be difficult to come by with less funds channelled to capital expenditure,” said Bismarck Rewane, chief executive of Financial Derivatives Company, in the latest Bi-monthly Economic and Business update.
“It is also our opinion that the increasing cost of governance should be critically examined as a matter of expedience, and ways to at least put a ceiling on it fashioned out.
“Furthermore, the poor budget performance of previous years makes the job creation boast of 2014 a hard-sell. This is contrary to the fiscal strategy adopted over the past two years, geared towards correcting the lopsided imbalance between recurrent and capital spending. The strategy has succeeded in lowering recurrent spending from 74.4 percent in 2011 to 68 percent in 2013 while raising capital from 25.6 percent to 32 percent within the same time span,” he added.
Also, analysts believe the active involvement of the finance ministry in economic policy management and co-ordination pressures will continue to serve as distractions with the resultant consequence of poor performance of the budget.
“The Nigerian fiscal process has clearly derailed and there is an urgent need to re-examine the agencies charged with fiscal policy management and reorganise them for better performance,” Ayo Teriba, economist, said in a published article last week.
“The Federal Ministry of Finance is failing in its core duty of ensuring that nominal revenue and spending growth should at least keep pace with nominal economic growth, and now needs to be allowed to concentrate on those core functions. Revenue base will continue to dwindle as long as the Federal Ministry of Finance continues to be distracted by economic policy management, and the capital vote will continue to be under-implemented if the Federal Ministry of Finance continues to be distracted by policy design and coordination pressures,” he added.
Moving forward this year, the analysts expect to rather see coordination between fiscal and monetary policy required to ensure stability in revenue management and adoption of a Treasury Single Account (TSA) structure in order to facilitate the blockage of leakages in the government fiscal framework.
“We expect the Ministry of Finance to adopt the Treasury Single Account structure in 2014. The TSA structure should facilitate the blockage of leakages in the government fiscal framework, as well as reduce the bank fees and transaction costs of managing government’s cash balances. The TSA system will also enable lower liquidity reserves needs, facilitate efficient payment system and improve operational control during budget execution,” analysts at Afrinvest said.
Razia Khan, analyst at Standard Chartered Bank, London, in ‘Global Focus-2014 – The Year Ahead’, said the contentious political backdrop raises the risk that no budget would be passed by end-March 2014 (the deadline for approving the budget), while the ambitious oil output assumption (2.39mmbd versus 2.53mmbd in 2013) was likely to require further augmentation of budget revenue using Excess Crude Account (ECA) proceeds.
“Given revenue constraints, the capital expenditure budget will be cut according to the Medium Term Expenditure Framework, with the share of recurrent expenditure set to increase to 74 percent,” said Khan.
The noticeably more conservative budget is based on lower benchmark oil price and production projections However, and quite surprisingly, the percentage of aggregate expenditure to be spent on capital expenditures decreased from 31.34 percent in 2013 to 27 percent in the 2014 budget, while recurrent expenditures increased from 68.66 percent in 2013 to 73 percent.
Capital spending is set to bear the brunt, albeit temporarily, of the projected significant reduction in revenues in 2014 as it is essentially being crowded out by personnel cost which is projected to increase from 1.718 trillion in 2013 to 1.723 trillion in 2014.
