There was a time in the history of Nigeria, especially during the military era, when commentators and government praise-singers would glance at a budget and say, ‘It is budget of hope’ or ‘It is budget of consolidation’, as deemed necessary. These phrases could best be described as products of ‘voodoo analyses’ as the nation kept borrowing money from the Paris Club and Bretton Woods institutions. These comments notwithstanding, commentators were and are still rewarded with ‘juicy’ appointments at the federal level. That annual budgets in Nigeria have not improved the nation’s poor economic situation reflects the inability of our economic managers to manage our resources judiciously. Joe Biden, current vice president of the USA, once said, ‘Don’t tell what you value, show me your budget, and I will tell you what you value.’ Nigeria’s values are reflected in the budget presented by the Ministry of Finance on an annual basis. Despite huge mineral resources available in Nigeria, the easy option always embraced by government officials for economic survival is the ‘begging bowl’ approach. By adopting the ‘begging bowl’ approach Nigeria is always looking up to foreign institutions for donations and grants as well as borrowing of funds to spend in addition to its earnings from the sale of crude oil.
It would be recalled that in 2005, about $18bn of Nigeria’s debt out of the sum of $35bn that the nation owed was written off by the IMF and the Paris Club. Despite our foreign exchange earnings from the sale of crude oil, record has it that for almost a decade now Nigeria has been running a budget deficit. World Bank figures show that Nigerian government’s budget averaged -2.33 percent of GDP from 2006 until 2013, reaching an all-time high of 4.6 percent of GDP in 2008 and a record low of -6.6 percent of GDP in 2009. And in 2013, it was equally reported that Nigeria recorded a budget deficit equal to -1.8 percent of the country’s GDP in the same year. Nigerians, except those in government, do know that most of our people are poor, albeit our country is world’s seventh-largest oil exporter and Africa’s most populous nation. That most Nigerians are poor is not surprising as it is not what the nation earns that matters but how money earned is being spent. It may be argued that Nigeria has chosen to run a deficit budget because the Federal Government needs more money to finance investment in public service, conduct political campaigns, and fight insurgency, and to boost the economy which is in recession.
The 2015 national budget proposal referred to as ‘Budget of Transition’ by the Federal Ministry of Finance will focus on ‘managing the revenue challenge in a manner that protects the most vulnerable while safely transiting to a broader based non-oil-driven economy’. The aggregate expenditure of N4.358 trillion has been proposed, which is 8 percent less than the amount for 2014. It will be a miracle for the ‘budget of transition’ to cater for the economic needs of the country when recurrent expenditure is reported to have increased by 6.5 percent, while capital expenditure declined by 43 percent when compared to the 2014 budget. It is proposed that the sum of N943 billion will be used to service debt, while N634 billion would be for capital expenditure in the 2015 budget. By implication, the amount proposed to service debt is more than that budgeted for capital projects. In order to maintain debt sustainability in 2015, the National Debt Sustainability Analysis of 2014 published by the Debt Management Office (DMO) recommends that the ‘Federal Government of Nigeria (FGN) can borrow a maximum of US$12.369 billion from external and domestic sources’.
A benchmark of US$65/barrel of crude oil was used for the 2015 budget. If the crude oil price remains lower than $65/barrel throughout 2015, Nigeria would lose some money out of the projected aggregate oil revenue of N1.918 trillion. Although the Petroleum Products Pricing and Regulating Agency (PPPRA) is reported to have projected US$60/barrel to be the breakeven (no profit) price of crude oil, government has promised to take appropriate measures if the price of crude oil per barrel falls below a range of $50-$60. If it was true that at $60/barrel there is no profit, then Nigeria made a loss when it sold crude oil in the international market at about $40/barrel in the last quarter of 2014. Although this is bad business, the only alternative was for the Federal Government to increase its production of crude oil to earn more foreign exchange. It can be understood why Nigerian leaders say that ‘government has no business in doing businesses’. The Federal Government should not be shy in privatizing the oil sector so that those who know how to do business will be doing business in that sector. The money from such privatization endeavour should be used to improve infrastructure.
Low crude oil price will negatively affect the economy in the year 2015, especially the funding of the N4.358trn budget. Although the government is expected to generate N1.684trn from the non-oil sector within the same year, the inflation rate, according to CBN, was about 7.9 percent in the last quarter of 2014. There are reports that the effect of both the inflation rate and devaluation of the naira were not taken into account in the 2015 budget. Since Nigeria is an import-dependent nation, keeping the inflation rate between 8.0 and 10.0 percent will be a challenge. Excessive spending in the 2015 elections, devaluation of the naira by about 20 percent arising from falling crude oil prices and the depletion of external reserves to $32 billion, impact on food prices as a result of security concerns and poor harvest in some areas affected by insurgency in the northern part of the country will raise inflation. If the naira is further devalued, it is humbly predicted that by year-end 2015 inflation rate would have gone beyond 10 percent. It is not easy to predict the reaction of the 2015 budget to an inflation that is more than 10 percent. Increased inflation rate will affect cost of executing capital projects as much more funds will be required than what has been budgeted. This is an indication that the 2015 budget may not achieve the desired objective in the provision of infrastructure. Consequently, the 2015 proposed budget may disable government from transiting safely to a broader-based non-oil-driven economy. While reviewing the 2015 budget which has not been passed into law in March 2015, it may be necessary to take into account rate of inflation and devaluation of the naira.
The fact is that in an economy whose currency has been devalued by about 20 percent and may be further devalued, the ‘begging bowl’ approach is inevitable, but for how long will this endure? The Federal Government may seize the opportunity of the global oil price reduction to privatize the oil sector, while taking drastic measures to reverse the trend in increasing recurrent expenditure and decreasing capital expenditure. This will entail making difficult decisions in order to reassess expenditure profiles of all arms of government, especially the executive and the legislature. These suggestions will reduce budget deficits, disable ‘begging bowl’ approach, and enable the budget impact positively on the Nigerian people.
MA Johnson
