By Anthony Aziegbemi, PhD, Econs
The 2017 Budget, known as the budget of growth and recovery is designed not only to get the country out of recession but also to forge the path to economic recovery. Amidst lingering economic crisis bedeviling the country, the 2017 budget is structured to reposition the country as Africa’s biggest economy. As laudable as this plan is, it is pertinent to examine the various components of the budget in order to determine whether the underlying budget parameters are not only realistically tenable, but also are capable of achieving government’s lofty ambition. Before we delve into the nitty-gritty of what the 2017 fiscal year holds in terms of solving the country’s current economic predicament, it is however important to first understand what has taken us this far.
First, the promise of this administration to Nigerians is among others primarily to, “chart a new course for a better future”. Better future should mean that economic fortunes should be beyond the level achieved prior to election into office. In 2014, the year before this administration assumed office, the average quarterly growth rate of Nigeria’s GDP was 6.23% according to the World Bank. The economy was also the largest recipient of Foreign Direct Investment (FDI) in Sub-Saharan Africa (SSA). This was when the country was regarded as the largest economy in Africa. In light of this, it is of grave importance to examine whether this budget is capable of transforming the negative growth achieved over the past 2 years of this administration into at the very least, marginally positive growth rate and chart a course for economic recovery and prosperity. Thus, does this budget have all the elements to bring about economic recovery and growth for Nigeria?
Essentially, it is without any shadow of doubt that Nigerians have entrusted the economy into the hands of a poorly performing team going by their inaction and pace of action since the assumption of office. Even though we are prepared to accept in good faith the undesired marginal positive growth target set for 2017, the budget components still needs to be reassessed. This article will assess the budget on three fronts; expenditure profile and deficit financing, revenue profile, and debt servicing. The budget intends to use N1.66 trillion on debt servicing of the N7.239 trillion which amount approximately to about a quarter of the national budget. In my opinion, this does not appear to make much economic sense. Having said this, attempt is still being made to increase capital expenditure by accumulating additional debt at exorbitant service cost without equally making significant attempts to domesticate the debt. Furthermore, given the Central Bank of Nigeria (CBN) various policy hanky-panky that has only succeeded in driving inflation and exchange rate haywire, it is left to be seen whether the budget will influence aggregate spending in real term.
For example, the budget increased capital expenditure from 1.77 trillion in 2016 to 2.24 trillion which is about 27 per cent increase. Given that the government operates zero-based budgeting which takes great credence from expenditure justification even though historical cost is irrelevant in budget preparation. The 2016 budget has had little or no effect on the life of an average Nigerian. It is noteworthy that the average exchange rate for the 2016 budget was N197/$1 compared to N305/$1 in 2017 budget. Thus in dollar terms, the capital expenditure budget has reduced from about $9.08 billion to just $7.34 billion, a decrease of about $1.73 billion. If we now factor inflation into it, the decrease is higher. It should then be clear why the budget cannot bring any significant improvement to the economy. An expanding economy; an economy in recession yearning for increased stimulation need greatly increased capital expenditure size? Again, how much impact can we have in growing a N108 trillion economy with that size of budget? Quite minimal if any at all.
The major limitation of the 2017 budget is its neglect of the role of the private sector. The TSA, the exchange rate and the inflation rate position are over-crowding agents to private investment. Although grossly insufficient given the country’s economic predicament, the increase in domestic debt could over-crowd investment in the private sector where inadequate loanable funds may be diverted to finance government bonds rather than Small and Medium Scale Enterprises (SMEs) as a result of the security in government loans and its attractive rate of return. With the rising cost of raising funds by the federal government you cannot expect the cost of capital to SMEs to go down since they are associated with higher risk relative to the federal government. The cost of the crowding out effect of deficit financing proposed in the 2017 budget outweigh the benefit of additional government expenditure. The simple fact is that Nigerian government cannot spend its way to growth and recovery. The private sector especially the SMEs must therefore be encouraged through better result-yielding policies.
If we continue to adopt the strategy of 2017 budget, what proportion of our budget would be for servicing debt in the next five years? When are we going to reach the level of 5% GDP growth rate again?
It is pertinent to state at this juncture that using almost a quarter of the national budget for debt servicing with intention to borrow more to finance the current budget is absolutely ridiculous and have no place in economic literature. The implication of this is a mounting GDP/debt ratio which is pointer that rising GDP may be eroded with debt servicing obligations. Given the various questionable budgetary provisions made in the 2017 budget, and the makeup of structural institution in the country, this budget is not only unreflective of the country’s economic situation, but also incapable of engineering any real growth in the country.
In summary, it is very unclear how this budget will move this economy forward. The budget plan lacks seamless positive linkage with the catalytic parameters that cause economic transformation. For instance, it is not connected to the ERGP which is this administration’s flagship for economic transformation. The spirit in both constructs appear to be independent and therefore is less likely to produce impactful results; the type that Nigerians have been yearning for. This budget therefore does not present us with any hope out of our current economic situation.
Dr. Tony Aziegbemi, a former two term member of the House of Representatives and Chairman of Adel & Argus Global Services, writes from Abuja
Frontpage February 20, 2019