■ Economists tell Nigerians not to expect much from next year’s appropriations
By onyedika agbedo
As the Nigerian economy remains in the strangleholds of recession, expectations are high among the citizenry that the N7.3 trillion 2017 ‘Budget of Recovery and Growth’, which President Muhammadu Buhari presented to the National Assembly last Wednesday, would stimulate an upswing upon implementation. But opinions are divided among economists and financial experts on the acceptability of the document. While some see it as a budget that is in line with the country’s current economic reality, others condemn it outright. Sunday Sun spoke with economists/financial analysts and presents their view below:
The 2017 budget is a sham
Mr Henry Olujimi Boyo, renowned industrialist/economist and Managing Director of Cocosheen Nigeria Limited, Lagos
The budget is far removed from the country’s capacity to redress the very big wrinkles in the economy. There is nothing in this particular budget that inspires one to believe that it is different from any other budget we have seen in the last 20 years. If anything, the great failure of the budget is the lack of recognition that what is being promoted as the ‘Budget of Recovery and Growth’ is in fact going to make Nigerians much poorer.
To start with, there is no budget that Nigerians can look back on despite whatever fancy title it had and say ‘that was a good budget; it changed our lives.’ If anything, the budgets had been milestones on the journey to the current economic recession. And since we accepted the same modules of the past budgets in the 2017 budget, it is inevitable that failure would also be the result.
First of all, what are the similarities that this budget has with the failed budgets of the past? One, you would find that in a country like ours where there is so much decay in infrastructure, it should be sensible to allocate more money to infrastructure. But when you look at all the federal budgets for some time now, it has been usually 70 per cent or more recurrent expenditure and 30 per cent capital expenditure. But the 30 per cent allocation to capital expenditure had never impacted meaningfully on any area of infrastructure be it power, rail, road, etc. If anything, you find that the infrastructure we are talking about seem to be gradually degrading rather than being enhanced over the years. The fact that the 2017 budget also adopts the ratio of 30 per cent capital and 70 per cent recurrent expenditure means that Nigerians should not expect much improvement in infrastructure.
Also, the usual allocations to various sectors of the economy have not been reflective of best practice. What do I mean by this? In the area of education for example, the UNESCO recommendation for countries like ours is that at least 20 per cent of the annual budget should be dedicated to education. But it has never been more than five or six per cent. So, you can see that the template for failure is being replicated even in the 2017 budget.
Furthermore, you find that there is hardly any budget in the last 20 years or so that was based on surplus. Most of these budgets were formulated as deficits, which meant that we needed to borrow. And that should worry Nigerians. This is because during that period, we received more export revenue annually than was estimated in the budget. The budget benchmark is usually predicated on very conservative estimates. That induces the deficit, which requires borrowing. But in the course of the year, because the benchmarks were very conservative, you find that both output and price of oil, which contributes over 80 per cent of our revenue, were often above what was projected. Consequently, there is a surplus part of which they usually hide in the Excess Crude Account. But despite the fact that they had already borrowed to cover the deficit, they reached out again and took the surplus and spent it in the same year. So, they borrow the money and also consume the surplus. Is that not fiscal rascality? This is also likely to happen with the 2017 budget.
Also, the issue of the exchange rate had often not been factored into the budget. If you don’t recognise the wide fluctuations in the exchange rate of the naira and the dollar, then of course your budget is as good as dead before it even comes out. The 2017 budget particularly is as good as dead even before it is passed because we have on ground a wide disparity between the parallel market rate and the official rate of exchange. You would notice that the National Assembly was worried about the exchange rate and had noted that it was not realistic. It was at that point that government adjusted it from N297 to N305, which is still meaningless because the gap is still too wide.
For example, the 2016 budget was predestined to failure because as at the time the budget was presented, the exchange rate was N197 or thereabout. But by the time we got to about the middle of the year, the exchange rate rose to about N300. In other words, all the computations in the budget were thrown over board. So, when they said they had achieved 70 per cent of budget implementation in October, what they were saying in real terms is 50 per cent. Unfortunately, the exchange rate adopted for the 2017 budget is still not realistic.
Moreover, at the current exchange rate, the budget is smaller than the budgets we had both in 2014 and 2015. In 2014/2015, we had a budget of about N4.5 trillion or so but then the exchange rate was below N200 to one dollar. The N4.5 trillion in dollar term was about $21 then. Now, you say you have almost doubled your expenditure with N7.3 trillion 2017 budget at a time the exchange rate is N305 or N500 as the case may, but your N7.3 trillion is about $17 billion. So, you are spending less than what you spent in 2014/2015, when the budget was N4.5 trillion with the exchange rate below N200.
So, I feel very pessimistic about this budget; and it is the result of a clear observation of the details and how these details also reflected negatively in the earlier budgets. I don’t know whether I have convinced you that the budget is a sham or not. But that is my belief.
The Budget is good on paper
Prof. Abiola Awosika-Fapetu, a Professor of Business (Finance and Economics) and Rector of Olawoyin Awosika School of Innovative Studies (OASIS), Lagos.
I think the government is doing what it is supposed to do because the ratio of capital expenditure to recurrent expenditure is okay as against what we had before. The allocation to power and transport are also good. Power especially is the bedrock of economic development; so if we are going to develop, the power sector has to be fixed. And while the fixing is going on, more jobs will be created and when it is eventually fixed, Nigerians will be more productive.
Transportation is also very key because the movement of goods is also a stronghold of commerce. If goods can be moved in bulk at a cheaper rate, it will be better for everyone involved in commercial endeavours. What we lose everyday in trailer crashes along the highways is enormous. With a good transportation system, such losses would be minimised.
However, the allocation to education is too small in my opinion even though there was a distinction between education and universal basic in the budget. I consider the allocation too small because education is another bedrock of economic development that we have not invested enough money into. However, whereas in the past they spent all the education budget in building infrastructure that only benefited the contractors with little or no impact on the teachers and students, if the intention now is to invest the money on the teachers and the students themselves, then may be what they have voted for education will make an impact.
On the borrowing plan, I think the debt to equity ratio of financing the budget is also very okay. However, the key will also be in the implementation because the budget looks good on paper until we start spending the money. So, if we execute well, we have a hope.
But we also need to evaluate the 2016 budget in terms of what did we budget, what did we spend and what did we accomplish. Unfortunately, Nigerians don’t do such analysis; but if we can do the analysis and find out if 2016 budget was effective, then we have something to look forward to.
The allocation for debt servicing is for debts that we had before that the government has to service. I’m sure they too would wish that those debts were not there for them to service so that they can use the money to do new things but unfortunately that is where we are. The borrowing that they wanted to do has not been approved so I don’t think they have borrowed much. So, whatever they are servicing is debt from the past that has to be serviced.
On the impact the budget would have on our economy, which is currently in recession, it I think it will attack it somehow. I don’t think it will do the job of bringing the economy totally out of recession in 2017. We might actually go into 2018 before we begin to see outright relief. Surely, there will be some relief in 2017, but I think the recovery would probably be taking an upward trend in 2018.
No policies to stimulate private sector growth in the budget
Mr. Johnson Chukwu, Managing Director/Chief Executive Officer, Cowry Asset Management Limited, Lagos.
The budget is a positive effort towards bringing the country out of recession but there are several things that need to complement it, which are missing. There is no clearly defined policy initiative to encourage the private sector to resume productive activities. In fact, one would say that the local borrowing plan may actually work against the private sector when the government will be borrowing about N100 billion every month locally. That may lead to crowding out of the private sector if government’s borrowing is at the current interest rate, which is at 18.6 per cent for treasury bills and 16.5 per cent for bonds. In fact, such rates make it difficult for the private sector to borrow.
So, we need to review the monetary policies so as to encourage private sector investment activities. When we combine the growth spurred by public sector spending and that of the growth in the private sector, then we can be positive that Nigeria will come out of recession soon.
On the provision for capital expenditure in the budget, the key thing about it is that if the budget is fully implemented, it will have some effect in improving capital growth in the country. But we also recognise that the value of our currency has actually been eroded. If you compare the 2017 budget with that of 2016, it is about $24 billion whereas the 2016 budget was about $34 billion in terms of dollar value. Even though in naira terms it represents about 20.4 per cent increase, in dollar terms it represents about 29.2 per cent decrease. We must bear in mind that when your currency devalues, the purchasing power of that currency has been eroded, and that will affect the effectiveness of the 2017 budget.
Also, in a period of recession, when you talk of reflationary budget, it has to be deficit budget. So, every reflationary budget is actually a deficit budget because in a period of recession the government tries to pump in money into the economy instead of taking money from the economy. That is why we are seeing another deficit budget. It is only in a period of fast growth that the government would want to slow down the growth and you can now talk of surplus budget. So, as said, the budget is a positive effort towards lifting the country out of recession.