The Nigerian Budget 2019 And Issues Arising - Sanda


Friday, February 01, 2019       04.07PM  / OpEd By Babatunde Sanda  (Dec 31, 2018) / Image: Edexlive


Reviewing all information available on preparation, budget priorities and estimates, the institutions of state and public financial management, one will be led to pity this country that we are still the way we are despite being one of the poorest and most fragile 60 economies in the world… having the poorest of the world poor with 85million people living below poverty line out of 185million total population, despite enormous resource endowment human and otherwise and imperative for the rulers to be committed to rapid exit from this undesirable and unacceptable misery.


This is what our rulers can still do in the area of budget so why will they not be so reviled? Between the executive and legislators- the principal two of the three foremost organs of state and those who are most charged to initiate actions for good governance, they cannot implement what the fiscal responsibility act requires of them, year in year out for 20 years 1999 to 2019 by having in place each year a budget promptly at the beginning of the year the budget relates to. This is obvious and persuasive evidence of complete lack of noble character endowment of the people playing these roles.


This 2019 budget is bedeviled, like most budgets before it, with late submission by the executive which will lead eventually to late passage by the legislator. The 2018 budget was only passed by the legislators in June 2018, 6 months into the budget period. In fact the capital budget of 2018 started to be released only in June. Consequently, the budget performance was just overall 67% and 34% for capital expenditure.


That had been the pattern of all the 19years of current civilian democracy. In a nation with comatose infrastructure, landmass of about 1million sq km for which there is sparse 3,000 km narrow gauge railway that is mostly run down and non-operational, road network of about 200,000km respectively 18%, 15% and 67% owned by federal, 36 states and the 714 local governments and also 40%, 78%, 80% of which are in poor condition and 98% of all freight in Nigeria are by road haulage as against railway making Nigerian industrial production extremely costly and eventually uncompetitive in a global world such attitude of the reviled legislators and executive is to say the least a disaster to the nation. I don’t think it is matter of internecine war and recriminations by these primordial constitutional preeminent government organs. While the world is rapidly embracing Artificial intelligence, as speed of action is as  critical as quality of solutions to success and to being a leader or a laggard or be a trampled upon follower more so for a fragile and very poor nation as Nigeria, the Nigerian rulers had difficulty in using natural intelligence. I don’t accept its issue of passing the bulk. The people need to assert themselves and save themselves.


The Nigerian fiscal responsibility act, FRA, 2007 is so lucid in what are to be done by the executive and legislators regarding the annual budget. The World Bank engineered the reforms and also financed the training for the MDA of the federal government of Nigeria under the guidance of the Director of Budget in 2006 while the Medium Term Expenditure Framework, MTEF, and other economic planning and strategy documents were being reintroduced to federal government. We had used 3 years rolling plan estimates framework in the 1980s before everything was thrown to the woods by our rulers. Unfortunately, the executive claimed the legislators had not come back on the MTEF laid before it in September, and the former also rationalized that the delay till June by the legislators in passing the 2018 budget made it impossible to lay the MTEF by deadline of not later than 4 months before the commencement of the financial year it relates to or August which the Act prescribed.


Everything in human physical life requires system thinking and systematic execution except the supernatural and metaphysical. If the FRA had been adhered to instead of flouted by the legislators, the budget process will flow smoothly and logically. There is so much guidance and logical process the FRA requires to ensure a robust budget and budgetary system. The FRA Commission is required to report erring institutions or persons to the Attorney General for prosecution so its again a reign of impunity and acquiescence as usual. The nobleness the FRA envisages if lacking by the executive and the legislators then the people need to save themselves. If people swear to uphold the constitution of the federal republic of Nigeria and that’s the covenant with the people who gave them mandate but they proceed to abuse the constitution and turn themselves into conscienceless unaccountable mini gods then the people need to do the needful. 


The 2019 budgetary estimated federal government revenue from crude oil of N3.688 trillion revenue has been criticized by many commentators as unachievable on three grounds. The revenue contributed by oil will be higher when petroleum profit tax is added. The criticism from the opposition party had been very destructive and bereft of any suggestion of alternative. The first of the three criticisms are the projected daily output of 2.3 ml bpd on the background of 2mbpd of Q1 2018, 1.84mbpd of Q2 2018 and 1.95 mbpd for Q3 2018 or average of 1.9mbpd for 2018 to date. While the executive argued that the 300,000 bpd Egina is coming into full production from January 2019, it also argues that the 400,000 bpd condensate which is not under OPEC quota is not factored into the daily production and its there as buffer.


Unfortunately either by omission or commission it does not appear we have an executive that practices consequence management rather it is business as usual; otherwise what sanctions has been imposed on the managers of the NNPC which made the government targets unachievable - missing the projected daily crude production by as high as 15%. The revenue for 2018 would have been missed greatly except that the reference crude price in that budget was US$51 while average actual had been about US$70 or more. Interestingly, in the budget summary the only comment on this missed target is an offhand bullet point that ‘ the president has directed NNPC to take all possible measures to achieve target of 2.3 mbpd’. Really? It is a most unhelpful statement and inaction by the executive and a guarantee the 2019 target will be met by appeal not by holding anybody accountable which of course guarantees observance of the target in breach rather than compliance.


The second criticism is the reference price of US$60 per barrel for 2019 when current price is hovering about US$50 and is considered unrealistic even by the adversarial legislators who in the past had always wasted no time in hand twisting the executive to revise such benchmark price up. It is an unnecessary vexation as the price is futuristic and most econometric modeling agencies renowned globally project higher than US$60 for most of 2019. There are listing of various amounts of additional revenue from other sources to get the total revenue to N8.826 and there will be new loan of N1,649 trillion out of total budget deficit of N2,415trillion or 23% of budgeted spend for 2019 or almost 25% of total projected revenue of the federal government of 2019 and .4% of GDP of N139.8trl.


The debt ratio is very alarming for a government that is not able to manage multiple issues of development adequately, could not control its departments hence NNPC could not achieve 2.3mbpd crude oil output, the herdsmen farmers conflict could not be quelled consequent to which agricultural growth which was 3% in 2018 Q1 declined to 1.19% and 1.91% in Q2 and Q3. Manufacturing remains almost comatose and with the headwind of imminent sharp decline in oil given all the clean energies that are replacing fossil fuel energy sources immediately and steadily increasingly and oil is the source of up to 70% of government revenue as the latter rhetorically continues to restructure the economy such debt burden is not sustainable until the economy is restructured. The imminent decline of oil industry globally ought to be mentioned and plan of the government for it.


The government states  the budget is based on the government Economic Reconstruction Plan which underpinned the Medium Term Sector Strategy, Medium Term Expenditure framework and merged with the Fiscal strategy plan and medium term funding framework. It is not obvious how rigorous was the exercise. The preeminent place of many human capital economic infrastructure is not shown in the relativity of the spend. The federal government owns about 60 federal universities and polytechnics and that strategic human capital determinant ministry’s capital expenditure is N47b while the national assembly had an operating expenditure of N125bl for how many legislators and how many NASS personnel?. The auditor general office has a total operating budget of N2,96b. One can really not see the logic and the direction of government except that its business as usual.


The federal government budget spend is about 7% of the GDP which may equate poverty mentality budget. If the 36 states 2019 budgets are added at say another N6trl, all governments budget may reach 12% of the GDP. There is no way such level of planned spend with so much waste in the spend and slow speed can lead to Nigeria exiting the miserable social economic situation in any near future. Closing the infrastructure gap alone within next 10 to 15 years will require minimum of N3trl annual spend. There is need for an introspective look by the government on its modus operandi and why it is just lack lustre performance. I remember one industrial group in Nigeria that quantified the effect of federal government distruption of the traffic in and out of the only port handling more than 70% of all goods import and export and ended up with figures how the government was losing annually several billion naira tax from it. You also have so many agencies in the schedule to FRA which revenue are not captured in the budget.


Actually the budget captured just 4 or 5 of over 30 institutions and agencies listed in the schedule in FRA. There is complete lack of accountability in this government if only 5 of revenue generating agencies are even mentioned by the government in its budget. In the introduction of the budget there were some revenue being expected like the obligations outstanding from Nigerian Petroleum Development Corporation since 2017, past due oil licence and royalty charges.


It is not obvious if there is any periodic review of budget performance say monthly chaired by the Vice President who we are told oversees the economy and if sanctions are meted out to underperformers or the budget is still just a farcical ritual observed solely in breaches than in compliance as late Prof. Adedeji once described it. Yet the personnel budget represents 52% of the total budget spend. This needs to be worked on. There is definitely problem of productivity and over manning even starting from the number of ministries and number of ministers to the uncontrollable number of federal government agencies.


There are a lot of studies that have recommended the need to right size the establishment but the government remains lacking in will to do what is necessary for the nation but continues on expediency like its predecessors.


My advice is that a forensic audit of all the 30 agencies in FRA schedule covering in the first instance 10 years be carried out in January and February 2019 and appropriate actions including prosecution taken based on the outcome. The avenues for all income leakages represented by years of non-accountability by some of these institutions and agencies should be effectively blocked. Audit should not be in arrears for even a year talk of 5years and more and such audit reports should be reviewed promptly and effectively acted upon positively also promptly.   Even the budget allocation to a most critical financial control, reporting and accountability agency in government Auditor general of N2.96 shows how control and accountability is taken by this government. No wonder the Federal Character Commission is allocated N2.7b, Office of Secretary to the government of the federation N5.34b and the other mentioned amount to Auditor general. I don’t know how the Auditor general will ever be effective given how unimportant he is being made to feel in the scheme of governance or mal administration.


The other aspects of PFM needs to be examined and addressed very critically.


State institutions that prepare and run the budget as long as they are configured not to succeed will fail. Institutions are strong if they are manned by qualified people and adopt universal best practice in every area of their operations and a posteriori this has not been the case with Nigerian institutions. Where we enthrone mediocrity in the name of federal character we will reap more in calamitous returns as what goes round comes round and its like you sow the wind and reap the whirlwind. Some will be wondering and engage in denial of the obvious failure of most institutions if not all and what mediocrity in the name of federal character has to do with it. Where recruitment is not transparent through objective general screening of all candidates, appointment and subsequent deployment, development, reward and progression is not based on merit but on nepotism and clannishness, you breed cronyism and silos emerge and so war of attritions between different groups till the employees lose sight of the corporate value statement, charter and mandate. Then you see policemen leasing rifles to armed robbers, the immigration giving foreigners work permit for jobs since having excess qualified Nigerians more than 3 decades on, etc. How will such institutions be ever effective and that is what will drive the budget. Inclusiveness and diversity does not mean conundrums for staffing institutions whimsically by politicians using nepotism and other favoritism basis - old school mate candidate etc. But the way you lay your bed you will lay on it. Strong institutions arise from convergence of 5 factors, clear vision, value proposition and charter; manning by highly competent and energetic charitable personnel with patriotic drive; strong shared values; dedicated and equitable leadership and inclusiveness and diversity but the latter not tokenisms nor mediocrity in the name of federal character.


Self created bottlenecks should be removed and there are others besides the obvious sore – the Apapa port (self-inflicted pain).


If it’s a continuing government then we should avoid going forward and backward. The current budget was still making provision for the construction of an electricity generation plant by the federal government in Kaduna for N400b. That’s most unfortunate after the power sector has been deregulated since 2004 and the government generation and distribution companies privatised. The proponents who are powerful in government do not understand deregulation combined with privatization or they do lack discipline or they are just whimsical in matter of economic policy implementation. There may not be law which asks government at federal level not to build power plant but the government current focus on allowing the private sector to drive the power sector in investment and management should be made to work by government rather than create an indecisive and ambivalent government intentions and unclear environment for genuine investors.


The government bungled considerably the privatization of 2013 power assets, failed to sell to genuine worthy investors given how the charlatans in possession of these assets have since 2013 failed to invest anything meaningful in metering and transformer for the discos but instead owe the gencos several billion naira debt for power purchased and you will expect a serious successor government to rescue the nation from whatever fraud attended that exercise speedily. Has the government got so much to spend on power again? If the privatization is working and the sector regulated appropriately and there are enough commercial opportunities then the private sector will eagerly seize the opportunities. Another issue with deregulation and past privatization are the many cases not handled well which still make the government to be anxious for product and service delivery and also financially including the power sector, the automotive, iron and steel and aluminum, shipbuilding, aviation, pulp and paper, petroleum upstream, midstream and downstream- refinery, gas, petrochemical etc.


If all these are not speedily resolved, the government will still be financing the critical privatised sectors as a consequence of its past unprofessionalism and corruption in privatization transaction as creative professional privatization transformation which ensure continuation of all privatised enterprises at tremendously enhance growth, private capital and other wherewithal and breakthrough for industrialisation and employment.


I can mention briefly that the call for greater budget by government requires significant funding. Where will this come from? These will include plugging of all leakages of income not surrendered by federal and state government income generating agencies, increased economic activities will be attended by increased revenue from taxes, removal of self-created bottlenecks which has reduced business activities significantly and therefor tax from business operators. The PPP as presently run by the governments by non-professionals and many of which are insidious protégés of politicians who see it as their own toll gate in general fleecing of Nigeria. What has Nigeria reported from PPP when compared to other emerging economies like India, South Africa and Brazil will shock you? India for instance finances over 60% of its tremendous annual infrastructure through PPP not public private pillage of our patrimonies. Another source is privatization transformation.


End. 31 Dec 2018



About The Author

Babatunde Sanda has over 36 years cognate experience with over 18years experience in Auditing and Consulting, spanning three of the biggest international professional firms namely Coopers & Lybrand, Ernst & Whinney and PriceWaterHouse where he rose to the position of Senior Consultant in 1990. He retired as a Senior Partner of EY in December 2016. He is now into Economic, business and financial consulting. Mr. Sanda’s banking career started in 1991 and he rose to the position of Executive Director, Finance in 1998 at Wema Bank Plc and was Managing Director in 2000 of Banque International du Benin, Cotonou -a universal bank in Cotonou, Benin Republic. He was appointed by the Central Bank of Nigeria in 2006 to serve as Director of Societe General Bank of Nigeria Ltd (while in holding action). Babatunde holds an honours degree in Business Administration from the University of Benin, is an alumnus of the Advanced Management Program of Stanford University, California, USA and has attended various Management and development courses in major international institutes across the globe. He is a Fellow of the Institute of Chartered Accountants of Nigeria (ICAN) and an Associate of the Chartered Taxation Institute of Nigeria.



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