2019 Budget: Matters arising (2)

Eze Onyekpere

The expenditure framework of the 2019 budget proposal continues
the tradition of getting the priorities wrong. Of the overall
expenditure projection of N8.83tn, recurrent non-debt takes
N4.04tn, which is 45.75%; capital expenditure is N2.031tn, which is
23%; statutory transfers are to be funded by N492.36bn, which is
5.58%; debt service gulps N2.14tn, which is 24.24% while sinking
funds to retire maturing bonds (which is still a part of debt
service) receives N120bn, being 1.35% of the votes.

The first challenge arising from this expenditure framework is
that capital expenditure is to take 23% of the budget. This is not
good enough for an economy experiencing massive infrastructure
deficit. Previous experience indicates that the capital vote is
very poorly implemented. For instance, out of the 2018 capital vote
of about N2.87tn, only N820.57bn had been released as of December
14, 2018. President Muhammadu Buhari was however silent on how much
was cash-backed and utilised as of that date. It is the norm in
Nigeria’s public finance management that not all sums released get
cash-backed and not all cash-backed sums get utilised. It is
therefore not sufficient to make proposals which may not be
followed through at the end of the day. It is also imperative for
the administration to ensure that the bulk of the capital
expenditure is developmental rather than administrative. This is
the only way it can have a direct impact on the majority of
citizens.

The second challenge is that the rising debt service appears to
be crowding out expenditure in critical infrastructure and human
development. At the end of the day, if there is a shortfall in
revenue, salaries and overheads will be drawn down, debts will be
serviced whilst capital projects suffer. At 24.24% of overall
expenditure, the debt service is higher than the capital
expenditure. When the sinking fund of N120bn is added to debt
service, it comes up to N2.264tn, which is 25.70% of the overall
budget. When the 2018 experience is used, it shows that Nigeria has
already spent over a trillion naira in debt service at a time no
kobo had been released for capital expenditure in the second
quarter of 2018. And the releases for capital expenditure only came
up to the aggregate sum of N820.57bn in December 2018.

Continued massive domestic and foreign borrowing will grind the
economy to a standstill very soon because of the high debt to
revenue ratio. With a debt to revenue actual in 2017 of using 68
kobo in every naira of our total revenue to pay back debts, we may
soon have to abandon capital expenditure and even personnel to be
able to pay back debts. Still on debts, domestic borrowing has been
stated to crowd out private sector borrowing and leaves little or
nothing for the private sector to create jobs and wealth and
increase productive capacity. It makes banks lazy as they are sure
of getting fat returns for taking no risks. As such, their appetite
for intermediation and risk-taking becomes low. Massive foreign
borrowing at a time of economic instability leading to massive
depreciation of the naira increases the demand for financial
resources to repay the debt. From a value of under N200 in early
2015 to a value of N360 to $1, the pressure is building up. With
the fall in oil prices and lack of diversification in our economy,
debt repayment will continue to gulp a huge part of our
revenue.

The third challenge is to resolve the contradiction between the
Federal Government’s mantra of cutting down waste, improving
efficiencies and removing “ghost workers” from the payroll and its
relationship with the rising recurrent non-debt expenditure.
Recurrent non-debt expenditure got N4.04tn as against N3.51tn in
2018. This is 15% increase between 2018 and 2019. In 2017, the
approved recurrent non-debt expenditure was N2.99tn. This increment
cannot be the sign of a system that is taking steps to remove waste
and inefficiencies. If it is also understood that the new minimum
wage demand of workers has not been factored into the expenditure
proposal, then, it would be clear that personnel expenditure, a
component of recurrent non-debt expenditure, will increase by no
less than 60% in the short to medium term. This will definitely
happen before the end of the 2019 fiscal year.

The GDP is expected to grow at 3.01% in 2019. However, the
growth recorded in the last four quarters is as follows: Q4 2017-
2.11%; Q1 2018 – 1.95%; Q2 2018 -1.50% and Q3 2018 – 1.81%.
Evidently, if there are no special fiscal, monetary, trade or other
economic interventions, the GDP projection may not be realised.

When the rhetoric from the ruling All Progressives Congress and
the response of the main opposition challenger, the Peoples
Democratic Party, is paired with the revenue and expenditure
analysis, it is clear that the Nigerian economy is in a mortal
danger and trouble lies ahead especially for the poorest of the
poor. There are no new ideas, innovations and ideals on how to
expand the economy, especially through the raising of additional
revenues and resources to fund development. Yes, the little
available resources have been mismanaged by successive governments
including the current government. Even if we have faithfully
utlilised previously available resources, we would have still
needed massive infusion of other resources to fulfil our
developmental dreams. The oil economy revenue is too low for our
developmental needs.

Thus, our politicians need to come down from their high horse
and get a dose of reality and intellectual capital to be able to
drive this ship in the next four years. We need across the board
cutting down on wasteful expenditure and frivolities. From the
legislature, executive to the judiciary, we need a new thought
process. The leadership needs to come clean to open up the system
by ensuring that their income is in accordance with the
constitution as stipulated by the Revenue Allocation Mobilisation
and Fiscal Commission. Contracts should no longer be inflated.

It is clear that increased domestic revenue generation has
become imperative for development. The Federal Government needs to
account for stamp duties which it has been collecting and which
have yielded trillions in revenue. It may also consider removal of
fuel subsidy to redirect over a trillion naira in expenditure and
increase VAT to 10%. But this must be preceded by enhanced
transparency and accountability across all Ministries, Departments
and Agencies of government. The budget should contain clear
provisions on how to deal with the minimum wage demand of labour
while responding to the demands of higher education as enunciated
demands of the university and polytechnic lecturers.

Also, the National Assembly should approve the MTEF before
commencing work on the budget. It is expected to do a thorough
vetting of the proposals before their approval and forwarding for
presidential assent. Besides, it should also ensure that revenue
projections are based on empirical evidence and trim budget
expenditure to be in harmony with realistic and realisable revenue
projections. The budget should be realistic, implementable and in
harmony with available resources. Finally, reforms must precede
increased domestic resource mobilisation. The President should make
up his mind on what he wants out of reform bills such as the
Petroleum Industry and Governance Bill. He should liaise with the
National Assembly to get the bill signed into law.