It has become traditional for every government to make budget from year to year, but the result has always been different from the declared intentions of the budgets. Like everything about this administration, its budgeting process seems to have gone from bad to worse, and the 2021 budget represents the hallmark of its fiscal confusion and conflicts in the management of the economy.
For an economy that is already experiencing stagflation – economic stagnation and hyper-inflation, which has swelled the population of poor Nigerians – the budget, ironically termed “Budget of Recovery and Growth”, the policies enunciated in it do not convey such intentions. It is evident that the 2021 budget may end the way of others since this administration, characterised by padding, under implementation, high deficit and debt, and poor performance
The parameters are quite conservative, which suggested new thinking and orientation, but the borrowing component and planned taxation throw a spanner in the works. The budget of N16.3 trillion is based on the benchmarks of $58 per barrel oil price, 2.4 mbpd, 12 percent inflation rate, 4.5 percent GDP growth rate, and N6 trillion new borrowing.
Apart from the oil price benchmark, virtually every other parameter in the budget is too optimistic and almost unrealistic, as has been the case in the past six years of this government. Currently, oil price is in the lower $80s and the lower benchmark is pragmatic to ensure more accretion to the foreign reserves to cushion the cascading value of the naira and wedge rampaging imported inflation.
Although the National Assembly has expressed intent to raise the oil price in a bid to reduce the debt component, wisdom should inform that the oil price be kept reasonably low to have at least a $10 buffer for the naira. Perhaps, this is the only positive in the budget, as other parameters send alarm bell ringing over their thoughtlessness and foolhardiness.
The biggest danger in the budget is the N6 trillion new borrowing to finance infrastructure, but it has become evident that some parts of the borrowing go into recurrent expenditure, as we spent 97 percent of revenue on debt service in the first half of 209021.
We agree with the House of Reps members in the debate on the general principles of the budget that it sounds quite contradictory to have low oil price benchmark and a huge debt portion. The purpose of a conservative oil price is to have a modest and moderate budget with small deficit.
However, the massive deficit of N6 trillion negates the idea of a lower oil price, which the Reps insisted does not make sense. So the intended increase in the oil price is to reduce the humongous deficit and borrowing, which has remained contentious under this regime. This government has borrowed more than any other government in history.
Nigeria’s debt stock has already ballooned from N12 trillion in 2015 to N35 trillion and experts believe it will each N50 trillion by the exit time of the government. Government insistence on basing its borrowing on GDP, rather than revenue is plunging the nation into debt trap. An economy in deep debt and without strong revenue earning capacity can experience neither recovery nor growth.
With inflation still at 17 percent, and naira under the bus, as a result of foreign exchange pressure, the inflation rate of 12 percent is far-fetched. Inflation reduces purchasing power, which discourages demand and eventually reduces production and capacity utilisation. To achieve 12 percent inflation would be positive, but this is not likely to happen with the plan to raise tax.
Although, government argued that many Nigerians evade tax, imposing tax in a recessed economy is a death sentence. According to government, the budget is based on bringing more Nigerians into the tax bracket to ensure more revenue outside of oil. Ordinarily, this is a good proposition.
Government believes that only four million out of the 40 million eligible Nigerians pay tax and increasing the figure to about 20 million will solve the revenue crisis of government. In comparison, 14 million South Africans pay tax, which is triple the number in Nigeria with four times South Africa’s population. Government must recognize the reason for the high rate of tax evasion in Nigeria.
The economy is unproductive and more tax will exacerbate its unproductivity. Tax will raise inflation because companies would pass the cost to the consumers. With high prices, demand would fall, and companies would cut production and ultimately lay off workers. So the very idea of tax is like the deficit of N6 trillion.
Similarly, the 2.4 mbpd output and 4.5 GDP growth rate are at best mere intentions devoid of concrete economic fundamentals to make them realisable. In the past six years, production output has remained at 2mbpd on average and the GDP has only reached 2.8 percent at peak. It would be great to achieve 4.5 percent growth rate, but the policies do not support such projections.
In our opinion, this budget does not provide much hope for the recovery and growth of the economy. All the optimism and confidence expressed by government on the budget seem misplaced and impracticable. A budget as an expression of intentions should also be based on facts that not only agree, but should also give a glimmer of hope.
Both we find absent in the 2021 budget and we are constrained to place any hope of improvement in the economy on it, because it is a badly coupled expenditure plan that sounds big on amount but projects very little on reality and result. It is another disappointment coming from this administration that promised so much to Nigerians, but sadly, has delivered very little.