Nigeria is paying too much emphasis on its budget, ignoring key components necessary to achieve faster economic growth and bless the lives of its many citizens living in poverty.
Year in year out, whenever the budget is in the phase of passage, there is always a scramble for it. From the Legislature down to the various Ministries, Departments and Agencies (MDAs), all, depending on it either to execute planned projects or for personal interest.
For the common man on the street, a budget is like an obscure element that otherwise does not exist since it has little or no impact on them.
That speaks a lot to the question of the curious case of increasing budget without a corresponding increase in economic growth or improvement in the well-being of citizens.
In the last five years, the federal government has succeeded in almost doubling its planned expenditure yet growth has remained below 2 percent while unemployment and poverty rate has increased consistently during the same period.
A flashback to the school days, what can we make out from the budget using elementary economic theory.
Imagine this scenario, a bodybuilder, aiming to compete with other opponents in a weight lifting contest. To compete, he is to train with a minimum of 150kg of irons, just to be at par with other competitors.
It is expected that to have the right energy to meet up with the task, he must eat good food and rest well. However, while others are taking in the necessary food and vitamins to keep them fit and able to lift properly, the said bodybuilder went fasting.
It is apparent that the said builder may either slump before the contest begins or might underperform among other contenders.
Sadly, Nigeria’s budget can be likened to that bodybuilder who is fasting, thinking it can contend with other feeding countries who are preparing to lift 150kg in a contest.
Elementary economics from an expenditure approach sees the gross domestic product – otherwise known as economic activities – of any economy, as a function of government expenditure, private investment and household consumption.
Mathematically, the equation is represented as Y=G+I+C, where Y= output or GDP or overall demand, G means government expenditure while C means consumption by households. What the equation implies is that all the three components on the left-hand side of the equation are all prerequisite to lifting the gross domestic growth of any economy.
The federal government recently, presented to the national assembly, a budget worth N10.33 trillion, which has gotten many debates from all fronts.
The proposed budget set aside N2.14 trillion for capital expenditure, N4.88 trillion for the payments of salaries and overheads; N296 billion was earmarked for sinking fund to retire maturing bonds issued to local contractors while N2.45 trillion was set aside to service debt.
To finance the proposed expenditure of N10.33 trillion, the government hopes to generate N8.155 as revenue from oil, non-oil and other sources.
Taking it back to the equation earlier stated, Nigeria’s nominal gross domestic product in 2018 stood at N129.11 trillion. At N10.33 trillion expenditure, Nigeria’s budget as a percentage of the GDP is 8 percent while about 92 percent is from a combination of private investments and household consumption.
What this implies is that Nigeria’s budget is too small to impact on growth. What is needed to drive its growth is an enabling environment to attract private investments which will, in turn, boost household consumption.
In reality, no country in this world operates in autarky – a situation whereby a country does not trade with others – hence, the need to bring in external indicators, such as exports and imports.
Even when this is considered, it is businesses and firms that produce goods and services that generate foreign exchange earnings for a country hence if manufacturing productivity falls, receipt from foreign exchange is expected to drop.
The talk of an increase in government expenditure gained major prominence when John Maynard Keynes, a 20th-century British economist, raised concern on the need for government to spend more to create a multiplier effect in the economy.
His economic thinking gained ground in 1930, during the global economic meltdown. At that time, private investment, as well as aggregate demand, was dropping hence, he advocated that the government spending to boost aggregate demand, as against a prior economy thinking that the forces of demand and supply should be allowed to determine the direction of activities.
His notion of an increased government spending went far in getting the economy back on track at that time. But Keynes postulation is to a large extent a far cry from what Nigeria is practising.
Nigeria’s budget, on the other hand, has headed north only to pay salaries, overheads and services its debt and not for expenditure on capital projects that would create a positive ripple effect on its economy.
At N2.46 trillion, capital expenditure proposed for the 2020 budget, is 23 percent or N721.33 billion lowers than the approved N3.18 trillion for the 2019 budget.
MICHAEL ANI
