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Budget 2012: Where El-Rufai Got it Wrong

Category: Nigeria Economy


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Budget 2012: Where El-Rufai Got it Wrong

 

By Bright E. OKOGU , Director of Budgets / January 23, 2012 / Thisday

 

Our attention has been drawn to an article by Mallam Nasir el-Rufai on the back page of THISDAY of Friday, January 20, 2012 titled “Budget 2012 – Broke Country, Expensive Leaders”. In the article, the author indicated that his objective was to “…enlighten all stakeholders on the provisions contained in the Budget”. We recognise that the budget is not just a technical document, but a major instrument of public policy, and hence it is inevitable that some analysts would choose to dissect it with a political scalpel. Nevertheless, debates of such an important matter in the public space need to be factual lest the intention of public enlightenment be defeated. Ordinarily, the Budget Office does not join issues in respect of its work, for the simple reason that, by the very nature of that work, it cannot satisfy everyone. This reluctance to join issues is even more so in the case of el-Rufai, a former cabinet minister and member of the former Economic Management Team. Our stance has always been to provide clarifications as and when required, and it is in this spirit that we have considered it necessary to offer clarifications on some of the issues raised, so that readers are not confused.

 

I group the issues raised into the following categories (1) those due to incomplete information at the author’s disposal (2) those due to a lack of understanding of the classification process, and (3) those that are political -- a refusal to acknowledge ongoing efforts of government to address problems that have been with us for a long time. We shall address the issues raised, although not in a grouped order.

 

Before addressing these issues, however, I think it is necessary to state categorically that Nigeria is NOT broke, as suggested by the title of the article. We have challenges, like other countries, but the balance sheet of the nation is strong – a fact that has been recognised by independent analysts, including Fitch Rating Agency and Standard & Poor’s, which both recently upgraded the outlook for Nigeria at a time when they are downgrading many OECD countries! We should not talk our country down when others are celebrating it because this serves no good purpose whatsoever. What we need is for Nigeria to start putting its financial house in order now, so as to avoid the negative fate suggested in the title of the article. This is why bold policy reforms of the government need our collective support, irrespective of political differences.

 

Purported omission of JV cash calls and special funds

The article claims that there was no provision for Joint Venture cash calls, and that Special Funds were also not reflected in the revenue framework. The truth is that provision is always made for JV cash calls, and the 2012 budget is no exception. Indeed, it is unthinkable that this item would have been left out of the fiscal framework submission to the National Assembly, as it is the basis for generating our oil revenue, which constitutes a major part of our budget. The version of the framework on our website is an abridged one, containing the broad aggregates, which is not an unusual rendition of web data. An amount of N832 billion (about US$5.4 billion) was provided for this purpose in the fiscal framework. The same explanation applies to the special funds said to have been omitted. This is calculated automatically, based on the revenue sharing formula and properly reflected in the framework sent to the National Assembly. A slight correction is, however, needed, so that readers can fully understand. The share of special funds is 4.18 per cent; not 7.5 per cent as stated in el-Rufai’s article, and it complements the direct Federal Government share of 48.5 per cent.

 

Transfer to the Excess Crude Account (ECA)/ Sovereign Wealth Fund (SWF):

The claim by el-Rufai that “No provision has been made in the Budget to transfer any amounts to the Sovereign Wealth Fund” is rather curious. Fund transfers to the ECA/SWF are NOT usually reflected in the annual budget because it is the difference between the revenue based on the benchmark oil price and the actual revenue accruing on the basis of actual international oil price. At the time of doing the budget, it is not possible to know what the eventual oil price would be. The best professional approach under such circumstances is to estimate accruals based on various price scenarios. Let me assure readers that we do have scenarios. As is the standard practice, accruals are lodged in the ECA/SWF after they are realised, and the 2012 budget will be no different.

 

Further borrowing to pay for subsidy?

El-Rufai states the obvious when he said that the fact that “...with the fuel subsidy not fully gone, the FGN’s assumption of zero-subsidy-deduction (for 2012) is off the table”. Yes, the partial deregulation will pose financial challenges, but progress has been made for the country, and industrial harmony has been restored. As the Chinese say, “the journey of a thousand miles begins with one step”.  The “hole” in the budget arising from partial deregulation obviously means that monies will have to continue to be drawn from the ECA to meet the gap. It does not necessarily mean that more borrowing will be done. I should point out, however, that the 2012 budget does provide for some borrowing on a declining basis up to 2015. Thus, the amount of borrowing to finance the 2012 deficit is N794 billion compared to N852 billion in 2011.

 

No money included in budget to fund the SURE Programme?

The SURE-Programme (SURE-P) is a well thought-out package designed to be a vehicle for reinvesting the proceeds from deregulation into specific social programmes that target those who most need it, as well as in high-profile capital projects. Yes, this was not budgeted for because at the time of the 2012 budget submission, deregulation had not yet happened. The idea is that resources freed up from deregulation would be used to finance intervention on social programmes and infrastructure. With partial deregulation now in place, the logical thing will be to scale down the programme in line with the reduced amount of resources that will be freed up. The benchmark price does not have to be raised on account of this. Currently, the subsidy is paid largely from monies that would otherwise accrue to the excess crude account, and the SURE Programme will be financed through this account with the approval of the National Assembly. The beauty of the programme is that resources will be moved from subsidising the rich and vested interests to things that benefit the poor and for development – something that the generality of Nigerians (including, I suspect, el-Rufai) agree to be a good thing, even if they have reservations on the timing of deregulation. Indeed, a variant of this model has been tried successfully in other climes, including in fellow OPEC member Iran as part of their deregulation programme.

 

Size of the Non-Debt Recurrent Cost:

The article criticises the size of the recurrent expenditure, starting with the claim that “The provision for the salaries and allowances of public servants has risen by about N150 billion from the 2011 levels to N1.655 trillion... [and] cannot be due to the usual annual salary increment.” Yes, el-Rufai is right; it isn’t just for annual salary increases only. Surely, he must be aware of the minimum wage granted civil servants in 2011, and the “relativity” increase for other levels in the aftermath of the minimum wage law. This explains the increase in the wage bill, and underscores the need to manage this item of the budget in an orderly manner, and not politicise it. In addition, Nigerians should be aware that the wage bill had been increased by 53 per cent in 2010, on the back of earlier increases for staff of tertiary institutions and medical personnel, starting in 2009. The article further talked about “Other items of expenditure that need closer review” (in the overheads).

 

Here, I would say that el-Rufai is preaching to the converted. Even before the submission of the budget, President Goodluck Jonathan had directed that steps be taken to rein in the overhead spending of MDAs. He further directed, several days before the appearance of the article, that the basic salaries of political office holders should be reduced by 25 per cent, and for more cuts to be made to the overhead expenditure of MDAs. These measures are already being implemented. On the wider issue of the recurrent expenditure, a cursory look would confirm that the main driver is the wage bill and government has initiated steps in this regard, including the committee that is reviewing the number of parastatals, and which was clearly stated in the budget speech of Mr. President. Management of the wage bill is an issue of political economy that requires careful handling. You just can’t throw civil servants out into the street overnight without careful assessment, knowing that each such person has six or more dependents they support in our population. We are taking other measures, including the ongoing biometric verification of workers and pensioners, towards making further savings, which are already yielding significant results.

 

El-Rufai also raised the issue of N1 billion for food in the State House. Sure, we can debate the size of the allocation, which, by the way, is N896 million, but Nigerians need to know that this is not just for the president’s kitchen. It is from this vote that state banquets, reception for visiting heads of state and dignitaries, particularly African heads of state who visit quite frequently, is met. This latter group sees Nigeria as an important country to which they bring their issues. There is a gamut of other responsibilities met from this vote, such as provision of meals for cabinet members in their weekly meetings, monthly National Economic Council meetings (involving state governors); Council of State meetings, etc.

 

Security Expenditure

The comments on the security sector allocation regarding the classification, size and distribution are neither here nor there. Whether the classification should include pension payments to retired servicemen is a moot point. The bottom line is that I believe that we should be a bit circumspect when discussing issues of national security, including details of their budget. The practitioners know more about their issues than the rest of us, so I choose not to be drawn on this. I should, nevertheless, point out that some of the data used in the article are wrong – using 2011 budget figures in some cases, and criticising the government for giving a “paltry” sum to a particular security agency when, in fact, the 2012 allocation was higher. In at least one other instance, the article cites a 2011 budget figure that is higher than the 2012 equivalent, and uses it to give the impression that government is profligate. A related matter is the claim that there is provision of N16.8 billion for a presidential aircraft in the 2012 budget. We do not have such an item in the 2012 Budget! A balance of N1.9 billion was, however, provided in the budget to complete the payment for an aircraft, the procurement of which has been going on since 2007.

 

I would like to reiterate that we value the right of Nigerians to study and comment on the budget, which is why we have been consistent in uploading it on our website over the past few years. We get inquiries for clarification on an ongoing basis, which is part of our public enlightenment programme. It is essential that public discourse on it should be guided by the facts, even with political differences. The public that we all seek to serve should not be misled.

 

•Dr. Okogu is Director-General, Budget Office of the Federation

 

 

 



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