Dwindling revenues endanger 2019 budget

President Buhari submitting the 2018 Budget to the NASS in 2017

By UCHE CHRIS

The 2019 budget is already in jeopardy like the past ones before its birth as a result of funding challenges with the capital expenditure. This government has attempted to fund capital projects from borrowing which has left a mixed bag of outcomes: rising rate of debt service and poor implementation of budget. Desperate for result, it is turning to assets auction in the 2019 budget.

One major aspect of policy the government has struggled perennially is in the economy and particularly the budget. Since inception this government has failed spectacularly to formulate and implement a workable and effective budget that could impact the economy and alleviate the lives of Nigerians.  This failure has manifested in the growing rate of poverty in the country in the past three years.

Poverty and unemployment have become more widespread. Figures from the National Bureau of Statistics show that 7.5 million Nigerians were out of jobs between January 2016 and December 30, 2017. A report released in June by Brookings Institution revealed Nigeria had overtaken India as the country with the highest number of extremely poor individuals with about 87million extremely poor people living below $1.90 a day, despite having only about 200million people at the maximum to India’s 1.324 billion.

The report had also said that number of Nigerians in extreme poverty increases by six people every minute. And in its latest report on Wednesday last week, the Institution said that another 1.1 million Nigerians slipped into extreme poverty in four months, bringing the total number of extremely poor to 88million.

Poor budget performance in this regard comes to one basic factor: Inability to fund capital projects. In strictly economic development terms, it is the implementation of capital projects that produce multiplier effects on the economy and improve the lives of people. This government has probably performed more than previous governments in delivering on recurrent expenditure; indeed, the government can be credited giving more attention to recurrent over capital expenditures.

While it has been borrowing to fund capital projects, the government has been meeting its recurrent expenditure promptly even the unsustainable social welfare programmes such as the school feeding, N5000 cash payment to the poor, and the N10000 trade loan etc. Not surprising, the recurrent expenditure component of the budget has been on a steady rise climaxing at 74 percent in the 2018 budget.

Already debt –revenue ratio in the 2018 budget is 68 percent due the heavy borrowing in the past three years, with experts and opposition parties warning that Nigeria is running into a debt trap which may worsen the poverty threat and sink the nation into deeper economic doldrums. With wage increase inevitable following threat of nationwide industrial action from Tuesday November 6, 2018, about 2-3 percent will be added to the recurrent expenditure.

Sale of assets to fund budget is simply an act of desperation rather than a clear well thought out policy option to improve the economy. This government has never mention privatization as part of its policy agenda and its sudden embrace is somewhat an after-thought, indeed it is not really privatization as the assets are being acquired by other government agencies such as the Central Bank of Nigeria taking over Mint and NNPC Ajaokuta Steel Company.

Huge cost of servicing new loans amid poor revenue informed the Federal Government’s decision to dispose of 10 state-owned assets to select investors and the public between now and year end, in order to fund the 2018 fiscal plan.

In the sale of the 10 ailing key national assets, two of which must be sold this month (Nicon Insurance Limited and Skyway Aviation Handling Co), the government is expected to earn the sum of $797m, that is, N289b. A Director at the Bureau of Public Enterprises (BPE), Joe Anichebe, who revealed government’s plan to sell the outfits, informed that the privatisation agency had pledged to raise N306b to help finance the planned spending.

Apart from the Ajaokuta Steel Complex, which the Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele equally identified as one of the assets penciled for disposal, other firms that are up for sale are in the power, aviation and insurance sectors. He listed them as Afam Power Plant and MINT.

The capital component for which vital assets are being sold to part finance, in addition to funds from borrowings in the local and international markets is N3. 133t, out of the N 9.12t the 2018 fiscal plan, which implementation began mid – June this year.

Under the plan, nearly N2t is to be raised from borrowings from both the domestic and international markets to fund infrastructure captured in the spending plan for the year.

One of those in support of the planned sale of government assets is a macro-economic policy analyst, Prof. Ken Ife, who equally sees the decision as sound and well-articulated policy under the government’s privatisation plan.

“The decision to privatise Ajaokuta Steel Complex is a wise decision because that complex remains one of the white elephant projects that we have in Nigeria. We need to look for a competent investor with a large war chest who can inject the needed funds to revatilise that complex so that it can play its role in the country, by providing the necessary steel derivatives for rail, auto, manufacturing, building and construction industries and the production of steel pipelines for the transportation of petroleum products thousands of kilometres away.

It is government giving itself money through ways and means, rather than allowing credible investors pay for the assets as was the case with te Discos and Gencos.  The challenge with privatization is hat government may not able o realize the over $30 billion already pumped into the steel firm over the past 35 years.

The release of the Medium Term Fiscal Framework (MTEF) and Fiscal Strategy Paper, (FSP) 209-2021, which set the parameters or te budget by the ministers of budget and planning Udo Udoma and Finance, Mrs Amina Ahmed, showed that the mistakes of the past three years are being recycled and the outcome is predictable. Cutting the size o the budget may be the only bright side of it.

Having assumed power believing that there was money to be spent, the government had retched spending propensity without recourse to the revenue prospects, thus raising deficit from about N400 billion in 2015 to n1.6 trillion in 2018. The move to cut the 2019 budget from N9.12 trillion in 2018 to N8.65 trillion, the government explained, is predicated on the need to ensure prudence, reduce deficit and borrowing while laying greater emphasis on revenue drive.

The Minister of Budget and National Planning, Senator Udo Udoma, who gave these indications in Abuja recently at a public consultation on the 2019 – 2021 Medium Term Fiscal Framework (MTEF) and Fiscal Strategy Paper (FSP), said, “We want to reduce borrowing and deficit in terms of the budget size.”

But he noted that in spite of a reduced budget in 2019, the administration was unwavering in providing for human capital development, education, health, and pension/ gratuities. He specifically pointed out that there will be some provision for possible minimum wage increase, adding that the government was set to redress years of underfunding of pensions and gratuities.

Udoma disclosed that the budget would be anchored on an oil production of 2.3 million barrel per day (mbpd), $60 per barrel benchmark as well as N305 per dollar exchange rate. An immediate challenge to these benchmarks is that they have mostly been unattained. The nation’s oil output has not surpassed 2m bpd in the past three years.

The GDP growth rate for 2019 is also reviewed downward from the earlier projected 3.5 per cent in the Economic Recovery and Growth Plan (ERGP) to 3.01 per cent. This too seems unrealistic given that the half year GDP dropped from 1.9 to 1.5 percent, and worsening economic indices hardly give hope of an improvement.

Udoma stated that with a projected 2.3mbpd oil production, N3.6trillion oil revenue was being targeted while independent revenue of N624 billion was being expected, down from about N847 billion in 2018.

He revealed that the 2019 budget would cut deficit by about N300 billion from N1.9 trillion in 2018 to N1.6 trillion. From every indication, the economy is unraveling and the budget outlook provides adequate proof.

He said, “2018 revenues up to August 2018, was N2.48 trillion, while the full year 2017 revenue was N2.6 trillion. Overall, 2018 revenues current run-rate is 30 per cent higher than last year’s. This is the reason we have cut the size of the budget from N9.12 trillion to N8.65 trillion.”

The minister explained that inflation is beginning to inch up, after 18 consecutive months of decline, standing at 11.23 per cent in August and 11.28 per cent in September as the base effect has begun to wear off.

However, Prof. Leo Ukpong, Dean, School of Business, University of Uyo, questioned the rationale behind the sale

“I think it’s a sad proposal. Frankly, that is a signal of our inability to manage our revenue and expenses. It might even suggest that the country is under debt duress, drifting back to recession, of even possible default in servicing our debts.

“ I think it would put more upward pressure on short and long term interest rate (pushing the yield curve upwards). In-turn, this will make future borrowing more expensive. In short, this will send a negative signal about our economy to the entire world.”