Published On: Sun, Aug 26th, 2018

Challenges of 2018 budget on the economy

Challenges of 2018 budget on the economy

The continuing crisis surrounding the 2018 budget and the legacy of poor performance of budgets in the past three years leaves little doubt that the economy will be worse off in the coming days. As a public sector driven economy, the budget is critical for developing key infrastructure and growing the economy.

Aggregate FGN revenue for 2018 is projected at ₦6.61 trillion Photo credit: mondaq.com

Whenever the budget is delayed or experiences any hiccup, the economy generally suffers because the private sector depends on government spending and its fiscal policies to plan and project for the year. Without such policies, operations of the economy are handicapped and the economy in jeopardy.

In the past three years the budget has been steeped in one controversy or the other. It had been either delay in passage, late presentation, padded items or poorly implemented. For instance, the 2017 budget manifested all these controversies and ended with only19 percent implementation level.

In fact N700 billion, about half of the capital vote of N1.9 trillion was released on December 17, 2017, clearly defeating its intended impact on the economy; the balance of N900 billion was carried over to 2018. It was not surprising that the economy though out of recession on account of upsurge in oil price could only record a 1.8 percent growth.

For an economy that is bludgeoned on every economic index, a 1.8 percent growth is almost a recess, because the oil sector alone contributes about three percent while population growth is at three percent also. So, experts predict that a growth rate of less than 10 percent cannot salvage the economy and will lead to deeper poverty.

The 2018 budget targets a 3.5 percent growth but from all objective indicators, this too may be far-fetched. Without an implementable budget by September, just three months to the end of the year, last year’s performance may seem rosy.

Effective implementation of the budget was expected to compensate for the anticipated run on the economy which is common during election seasons in the country. In most cases, elections pose high political risk for investors who take a flight to safety because of its violent and turbulent nature, thus compounding the already fragile and negative growth prospect of the economy.

However, this expectation, with hindsight, seems to have been overly optimistic as the budget may have failed to provide such cushion. Already the market has been on a free fall since the third quarter and this will continued till the election in 2019. And this is contrary to the general trend in the economy during oil price boom.

The contrast is that for the first time, the economy is contracting at a time of high oil price. For over a year now oil price has been on the upsurge reaching a peak of about $80, which has only reflected in foreign reserves accretion while the economy remains in the woods.

The pressing question is; if the economy does not improve during high oil price, when will it do so, given that the fortunes of the economy are more often than not tied to the apron-string of oil price? With the approaching elections when economic policies are expected to take the back seat, there is little hope of any    improvement in the economy.

A major challenge in boosting the economy since the advent of this government has been the untidy and unscrupulous manner the administration has approached the issue of capital expenditure. Although the government had ostensibly increased capital budgets significantly, the funding and implementation has conversely equally worsened, thus vitiating any expected gains from it.

For the first time in our budgeting process, the entirety of capital expenditure is to be funded through borrowing – both internal and external. The challenge and dilemma has been that such borrowings hardly completely materialised and consequently putting the budgets in peril.

With just a month to the last quarter of the year, inflation is still at double digit, interest rate is at 14 percent with businesses struggling to survive, the market is in free fall, public infrastructure is non-existent, cost of living is skyrocketing with attendant increase in poverty rate, and capital projects remain unfunded; consequently, there is visible signs that the economy will perform worse than last year. Government in the budget had promised to improve on all those indicators.

This newspaper, therefore, does not harbor the illusion about the performance of the economy and the challenges ahead. It is our considered opinion that this government has failed the people in improving their lives. The government has not only failed to improve the economy through viable policies but also disorganized and discouraged private sector growth and participation by its archaic policies.

Therefore, the critical choice and decision in this election should not be on the basis of anti-corruption fight or even security, as important as they may be. The real elephant in the china shop should be the performance of the economy and standard of living of Nigeria.

Blaming any previous government should not be reason enough for failure; leaders are elected to change things and improve lives, which this government has proved abjectly incapable of. This economy is in danger of another recession because the budget to sustain it and consolidate its exit has already been programmed to fail.

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