President Buhari on Wednesday at the national assembly presented his plans to spend N7.3 trillion in 2017, the highest budget proposal by any Nigerian government in nominal terms since independence. The budget is N1.24 trillion or 20.4% more than the N6.06 trillion budget for 2016. But a lot has changed since the 2016 budget was presented.
As President Buhari noted during his presentation, the 2016 budget was based on exchange rate of N197 to the US$ which was the reigning exchange rate when the 2016 budget was prepared. So in dollar terms, the 2016 budget was about US$30 billion.
Since then the exchange rate has suffered, and so the 2017 budget is now based on an exchange rate of N305 to the US$. Which means the dollar equivalent of the 2017 budget is US$24 billion, about US$ 6 billion less than the 2016 budget.
So, in dollar terms, Nigeria is actually spending less in 2017 than it spent in 2016. But does this really matter since the budget is going to be spent in Nigeria and not in the US. Sadly, it matters. It matters because of the high component of non-locally consumed items in the country, which by the way is not peculiar to Nigeria.
One key area that dollar inputs affect is in the development of infrastructure. So for 2017, President is planning to spend N2.24 trillion on capital projects. Some of the key capital projects that has been budgeted for this year include; roads and railways which actually have a high component of foreign input besides a good proportion of local labour. All the equipment that will be used in a road construction or in a building a railway would need to be imported. And the government would need dollars to bring them in not naira.
At N2.24 trillion, Nigeria’s capital budget is about US$7.3 billion, which is just about half of the estimated US$14 billion the country needs to spend annually to build up its infrastructure.
So while Nigeria’s budget has actually gone up in Naira terms, it has actually dropped in dollar terms to a level that would have little impact on the strategic sectors that it has been targeted at. The fall in the naira, which has sparked imported inflation, means that each naira will not go as far as the 2016 budget in making an impact on the economy even if the budget were to be fully implemented.
Things could actually be worse for the budget because there is a general consensus among economist that the exchange rate used in preparing the budget is not realistic. With the dollar currently selling for almost N500 in the black market, the N305 used in the budget is considered highly conservative. Most economist think that the naira would actually sell at around N400 to the US$, if the rate is not pegged by the Central Bank.
But any further fall in the naira exchange rate would also mean the budget would be less effective in achieving its objectives. Already, the expectation is that most contractors should be seeking a review of their contracts in line with new cost considerations, a situation that could box the government into a corner. The government is already challenged with meeting its revenue targets and therefore would be reluctant to listen to contract reviews.
A way out, which the President rightly noted in his budget speech, is to get the private sector more involved in providing key infrastructure projects across the country. This is where the Private Public Partnership (PPP) model becomes key for the government in meeting its deliverables in 2017 and beyond. The PPP model has to be revived and revived urgently, because the current budget is never going to go far enough to meet the huge needs of the country because the 2017 budget is actually a big naira budget with small potential impact.
Anthony Osae-Brown
