By UCHE CHRIS
There are two things mortally wrong with the 2021 budget presented last Thursday by President Buhari to the joint session of the National Assembly with little fanfare obviously in keeping with the mode of the time. The budget bill was harbinger of ominous news. The first problem is that Nigeria has become a chronic debtor-nation and the debt problem has become acute and, even, an overhang. Combined with overbearing challenges in virtually every sector of the economy, this budget appears to be a death sentence on the country.
Another issue with the budget is that it is misleading and raises false hopes. To a large extent, the budget is a lie and a deliberate abuse of power and process; and does not convey the true meaning of its intent. For instance, what is the expendable revenue in the budget? This question may seem trite and obvious, but it is very critical. The budget says government will spend N13 trillion with N4 trillion borrowing. But a close scrutiny reveals that government will only spend N9 trillion with the borrowing at best ceteris paribus – if all things remain equal – but in actual fact, it would be considerably less.
The budget is the true image of the president’s nature of governance, which says one thing and does another, and intentionally violates established laws in pursuit of his definition of and motivation for governance. The deficit of N5.2 trillion or 3.6 percent of GDP is above the Fiscal Responsibility Act stipulation of 3 percent for the budget. For him, the law only exists to further his objectives, and where there any conflict, the law must give way. This is what he has done with the Federal Character principles, where he has ignored the rest of the country in his appointments.
Former vice president, Atiku Abubakar, at the weekend, drew attention to this apparent breach and illegality in the budget, insisting the budget be recalled by the executive to address such abnormality. “This budget is illegal and should be recalled by the president to comply with the law”, he said, in a statement.
If there is any single factor to judge the government failure, it is on the debt accumulation, which has grown from N11 trillion in 2015 to about N32 trillion by the end of the 2021 budget year. The challenge is not the borrowing; the real issue is what has been the impact of the rising debt and the existing capacity to repay. Whatever may be the overall success and achievement of this government, its economic failures will haunt this country long into its future.
Former president Obasanjo has been proved more than right on this point: He said that of the three point electoral agenda of President Buhari, his weakest point is the economy. And five years later, it has turned out true. The biggest failure of this government is the economy and all the blame game of the parlous nature of the economy when they took over power is of little consolation and mitigation to the damage done by this government. Before the 2019 election, the Euro Asia Group published a report, which said that it will take Nigeria 10 years to return to its pre-2015 economic levels, is also proving prophetic.
In the budget estimates, total expenditure is N13.18 trillion, the highest in the history of the country. The highest budget before this government was N1.7 trillion, so in six years this government has quadrupled the government expenditure with diminishing value and rising debt. However, revenue is only N7.86 trillion just above half of the total expenditure, and a deficit of N5.2 trillion. If you think this is not enough bad news, now wait for this: N3.1 trillion is earmarked for debt service, almost 100 percent increase from the figure of N1.7 trillion in 2020.
However, the untold truth in the budget is that the real government spending based on actual accruable or receivable revenue, is a mere N4.7 trillion, when you deduct the debt service, which is a first line charge from the actual total revenue projection of government. In other words, debt service is paid as salaries are paid whether the revenue comes or not, ; and not based on the deficit or borrowing. Even with a borrowing plan of N4.3 trillion, which, mind you, will further spike the debt service next year, the total budget revenue for spending will be N9 trillion not N13 trillion – again if all the borrowing plan comes through.
Also the benchmarks of $40 per barrel and production output of 1.86 mbpd are always over-optimistic and clearly a mockery of the lessons of recent history of oil price dynamic in the global market. Unfortunately for Nigeria, this NASS is a “rubber stamp” of the executive and unlikely to either interrogate or conduct a proper due diligence on the budget and its projections. The effusive and condescending assurance of Senate President for the speedy passage makes that possibility a foregone conclusion.
What about the benchmark projections of inflation at 11.95 percent, GDP at 3 percent, and exchange rate at N379 percent? These are all fairy tales! At present inflation is at 13 percent according to figures by the NBS and prices of good are spiking daily following government policies such as minimum wage, VAT hike from 5 – 7.5 percent, electricity tariff hike, fuel price hike from N145 to N160 per litre, N50 Stamp Duty per online transaction. How is inflation going to drop with businesses still adjusting to the increases which took place within the current fiscal year?
This is not to mention the big elephant in the china shop – foreign exchange, which the CBN has futilely battled to stabilize. Last week a report by the apex bank confessed that the foreign reserve of the country will take a hard knock before the end of the year with the level expected to plunge to $29 billion from the current $31 billion. As access to forex becomes more restricted pressure will continue to mount on the rate as importers and manufacturers scramble for available forex at the parallel market, thus plunging the rate further.
For an economy that shrank by -6.3 percent in the first half of the year to grow by 3 percent next year will be magical. Although both government and the CBN have instituted some intervention programmes, the rot in so deep that such cosmetic measure would alter the course of growth in the short and medium term. The economy never fully recovered from the 2016 recession, making it doubly challenging to hit the positive mark in less than 12 months. It is such a wishful thinking that takes licence of economic reality.
This budget is a sheer disaster. If there was any doubt about this before now the 2021 budget says it all. Nigeria has run into a major debt crisis, and there is hardly a way back. Short of another debt relief, this generation of Nigerians will spend their entire existence paying debts, which is also likely to constrain the economic future of the next generation.
This government obstinately insisted that the country has the capacity to continue borrowing. It believes that by debt per GDP ratio, which is presently at about 26 percent, Nigeria can still borrow up to 48 percent and still be within the 60 percent threshold. China, for instance, used to have about 150 percent debt per GDP and still grew at over 10 percent. This is usually the argument of more-debt proponents. However, the major challenge is the revenue earning capacity, which by his admission in the 2021 budget, is 68 percent in 2020.
With almost half of the actual government revenue of N7.86 trillion dedicated to debt service, it is perplexing how government can continue to operate normally without borrowing? Because as the debt continues to rise and revenue remains sluggish available revenue would be negatively impacted as a result of high debt service, which is obligatory and a first line charge. Default on debt service is a double edged sword, which begins the process of compounding interest and principal – the road to debt trap.
For Dr. Boniface Chizea, CEO BIC consultancy, the budget is a mix of utopia and expediency. “We must however, empathize as we undertake this discussion to appreciate the dilemma of those charged with the responsibility of the preparation of the Budget at this particular point in time. Sometimes we permit wishful thinking as the matter in hand is rather problematic to handle otherwise.
“We have encountered comments to the effect that the assumed benchmark price is ambitious, that it is better to err on the side of caution. What must be cold comfort for us is that we survived the worst ever drop in the price of oil in 2020 and we were none the worse for it”.
To be worse affected by this budget and government fiscal policies is the MSME sector, which is the largest employer of labour and contributor to the GDP. Although government and the CBN have introduced policies to mitigate their problems and boost growth in the sector, it is doubtful if these would solve their worsening situations, as governments at all levels strive to boost IGR – internally generated revenue.
BH reliably gathered that SMEs are subjected to many taxes and levies from local, states and federal governments. Findings revealed that so many agents are involved in the collection of taxes and levies, given room for unauthorized levies and taxes. The impact of this on the operational costs of SMEs cannot be overemphasized, operators argued.
Troubled by this development, industry watchers have warned that if the trend is not reversed, it will impact negatively on the overall GDP of the nation in 2020.
The President, Association of Small Business Owners of Nigeria (ASBON), Dr Femi Egbesola, said that if urgent steps are not taken to change the slide, more SMEs will fold up and that the nation will suffer dearly for it.
“No doubt, with the scourge of the COVID-19 pandemic, figures and statistics that are being brandished around by NBS will drop. The MSME sector, particularly the manufacturing is the worst hit with the negative effects of the pandemic.
“Quite a number of MSMEs have closed shop and more will fold up or become ailing in no distant time. We (MSMEs) do not have the ability to bear the shocks created by this pandemic,” Egbesola said.
He noted that efforts by government to rescue the sector have failed to achieve desired results.
“Although, government has tried quite a number of palliatives especially in the area of finance, the effects has been highly insignificant because the beneficiaries are very minute compared to the population of MSMEs in the country”, Egbesola said, while warning that if nothing urgent is done by government to arrest the pending disaster in the MSME sector, quite a number of jobs will be lost as it is already happening.
“The contribution of the SME to the national GDP will drop drastically, crime and vices will be on the increase, high inflation rate will be the order of the day, while the purchasing power of the consumers will nose dive, the ASBON boss warned.
Also, the President, Association of Micro Entrepreneurs of Nigeria (AMEN), Prince Saviour Iche, said the impact of coronvirus (COVID-19) has left small businesses with little reserves and working capital to work with.
Iche expressed concerns that despite government efforts to assist small businesses, SMEs were still shutting down. He noted that many local businesses have been hit by rising costs and monetary tightening at bank levels.
An economist, Dr. Abiodun Turner, noted that SMEs account for two-thirds of Nigeria’s employment and GDP, warning that failure to protect them could put the nation’s economy at risk.