Budget and Plans | |
Budget and Plans | |
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Thursday, December 27, 2018
02:07AM / By Atiku Abubakar GCON (Dec 23, 2018)
President Muhammadu Buhari presented the 2019 Budget
Proposals to the Joint Session of the National Assembly on Wednesday 20
December 2018. Its key aim is to, according to the President, ‘further place
the economy on the path of inclusive, diversified and sustainable growth in
order to continue to lift significant numbers of our citizens out of poverty’.
The 2019 Appropriation Bill proposes an aggregate expenditure of N8.83 trillion
for the year of which N4.04 trillion is recurrent, N2.31 trillion capital and
N2.14 trillion will be devoted to debt service. The planned spending is lower
than the 2018 budget by N300 billion. Allowing for 11% inflation rate, its real
value is N7.95 trillion.
The proposed budget as presented is fundamentally
flawed. It deliberately ignores and fails to address current realities and
pretends, as Mr President asserts, ‘we are on the right direction’. On the
contrary, the 2019 budget is built on a very shaky foundation and makes very
generous, often wild and untenable assumptions which pose significant risks to
its implementation. It will be a disservice to the country if we ignore these
fundamental flaws.
Several inaccurate claims litter the budget document –
all, I think, in an attempt for Mr President to whitewash the regime and hide
their monumental failure to improve, even minimally, the welfare and living
standards of much of the population. I see the rhetoric of ‘inclusive,
diversified and sustainable growth’ as no more than an amplification of the
APC-led government’s renewed propaganda to hoodwink the citizens into believing
that there is ‘light at the end of the tunnel’.
Few of these claims by Mr. President are that ‘we have
recorded several successes in economic management’, that ‘the economy has
recovered from recession’, that ‘foreign capital inflows including direct
and portfolio investments (have) responded to improved economic management and
that ‘we have had a sustained accretion to foreign exchange reserves’ etc.
In reality, the economy is yet to recover from the
2016/2017 recession as it remains SEVERELY STRESSED, extremely fragile and
vulnerable to external shocks. GDP growth declined from 2.11% in 2017 to 1.9%
in Q1 and to 1.5% in Q2 of 2018. In Q3 of 2018, there was only a marginal
increase of 0.3% to 1.8%.
In its current form, the local economy is not dynamic
enough to journey to their so-called NEXT LEVEL. For the year 2019, a
general slowdown in the real growth rates of economic activity in both the oil
and non-oil sectors has been projected at 1.9% by the World Bank. This rate is
well below the 2019 budget projection of 3.01% and is not enough to create the
needed jobs for the growing population of the country or for the attainment of
the SDGs.
As a sign of the weakness of the economy, the rate of
unemployment has increased from 18.8% in 2017 to 23.1% in Q3 of 2018. Today,
close to 20 million people are unemployed compared to 7.2 million people in
2014. These high rates of unemployment represent both a significant distortion
in the economic system and a lost opportunity for critical national development
and could potentially threaten social stability.
Sadly, Foreign Direct Investment (FDI) is limited and
is declining. In Q3, 2018 capital inflows were US$2.855.21 billion showing a
decrease of 48.21% compared to Q2 2018 and 31.12% decrease compared to Q3 2017.
Indeed, its current level is the lowest since Q2, 2017. Value of Foreign
Portfolio recorded at US$1.7 billion represents a decrease of 58.2% compared to
Q2 2018. It also represents a 37.7% decrease compared to the Q3 of 2017.
Finally, it is very significant to note that capital
importation in 2014 (Q3) was US$6.5 billion and in 2018 (Q3) US$2.9 billion.
This shows US$3.6 billion or 55% decline since the regime came into power.
So, contrary to Mr President’s assertion, capital
importation actually shrinks! In reality, Mr President should expect no less. It
is a fact that under his watch and resulting from his actions or inactions,
investor confidence in the economy has waned like never before in Nigeria’s
history. Nigeria remains an uncompetitive economy as demonstrated by the
recent World Economic Forum (WEF), Global Competitiveness Index which positions
Nigeria as 115th of 140 Countries. The Report shows that Nigeria has
moved three places down, contrary to Mr President’s claim that ‘we are moving
in the right direction’. Nigeria remains one of the most difficult places
to do business as evidenced by the massive outflows of capital in recent times.
Yes, we have seen some increases in gross reserves.
However, the so-called ‘successes’ recorded did not emanate from any coherent
and comprehensive economic policies of the Federal Government. The ‘sustained
accretion’ to foreign exchange reserves resulted from increases in
international prices of Brent Crude and foreign borrowing. Given our total
dependence on the oil sector for foreign exchange earnings, any turbulence in
the international oil market will lead to reversals.
This cannot be counted as ‘success’. The acclaimed
‘success’ was simply by the Grace of God.
Even Mr President’s acclaimed successes in agriculture
can be interrogated. In spite of the so-called ‘increased investment
across the entire value chain from agricultural inputs to farming and
ultimately, food processing’, agricultural growth is well below historical
levels. The growth in agricultural production declined from 3.48% in Q3
2015 to 1.91% in Q3 2018. Similarly, in 2018, growth has been declining from 3%
in Q1, to 1.19% in Q2 and 1.91% in Q3. There is little evidence to show that
‘increased investment’ in agriculture has yielded positive results.
This brings us to what the key question is: can the
2019 budget place the economy on the path of inclusive, diversified and
sustainable growth in order to continue to lift significant numbers of our
citizens out of poverty as PMB claims?
Here are 6 reasons why it cannot.
First, the 2019 (budget)
is built on a very shaky foundation. It seeks to consolidate on the
‘achievements’ and ‘successes’ of the 2018 budget. However, the 2018 budget was
itself poorly implemented. Actual revenue collected was only N2.84 trillion (as
at September 2018) against projected revenue of N7.17 trillion. This implied
that as at September 2018, only approximately 40% of projected revenues were
realized by the Federal Government. Similarly, by December 14, 2018, only
N820.57 billion was released for capital spending out of a projected
expenditure of N2.652 trillion. This implied that only 31% of the capital
budget was implemented. This would impact negatively on growth, jobs and
poverty.
With such a dismal budget performance, the economy
would NOT have had the capacity to grow, generate wealth and jobs.
Secondly, the 2019 budget is
business as usual budget. The Federal Government keeps repeating the same
mistakes BUT expects different results. For example, although the current
resource position remains precarious, government does not intend to introduce
significant fiscal restructuring. Thus, in spite of dwindling revenues, subsidy
on PMS will continue (US$1 billion is budgeted for that); Government does not
intend to introduce any reforms in the foreign exchange market as multiple
exchange rates will be maintained – thus given away between ₦300 billion and ₦800 billion to opportunists, rent-seekers, middlemen,
arbitrageurs, and fraudsters; and finally, the budget is overwhelmingly
recurrent, with capital spending taking the back seat.
Thirdly, 2019 Budget is based
on grossly exaggerated assumptions. They are NOT able to put in place any
coherent and comprehensive policies to give hope that these assumptions can be
met. For example, the Oil price benchmark has been pegged at $60 per barrel and
domestic oil production will be maintained at 2.3 million barrels per
day. Of recent, the oil market has been turbulent, and Brent Crude sells
at less than US$60. There are projections of over-supply resulting from US
shale production and pressure on Saudi by the US not to cut production. With
regards to local production, we all know that throughout 2018, average
production was 1.95 million barrels per day. Indeed, the latest report from
OPEC suggests that Nigeria will be required to cut production to 1.65 million
barrels per day. This implies that revenue targets to implement the budget will
not be met.
The most laughable assumption is that real GDP will
grow at 3.01 per cent. When indeed, GDP growth has been sluggish, with a
projection of 1.9% in 2019. The government cannot cut spending and expect the
economy to grow.
Fourthly and very fundamentally,
2019 Budget is very small. The size of the budget is not sufficient to
stimulate the growth of the economy, create jobs and alleviate poverty. The
planned total expenditure of N8.83 trillion is lower than 2018 budget by
approximately N290 billion. The Federal Government is contracting the economy
whereas, in a period of recession, governments MUST spend more to have a
meaningful impact on jobs and poverty.
The budget is also very low in relation to the size of
the Nigerian economy, which is estimated at approximately N150 trillion. This
means that the 2019 budget is barely 6% of GDP. (Compare Bangladesh 15.30%,
India 12.74% and Afghanistan 11.9% in 2017). Again, this will have no
meaningful impact on jobs and poverty.
Fifthly, Nigeria’s fiscal crisis persists and fiscal
position of the Federal Government, and by extension, the states and local
governments remain precarious. First, projected revenues of N6.97 trillion are
3% lower than 2018 and second, the oil sector continues its dominance as it
contributes 54% of the budget revenues. The non-oil sector is expected to
contribute only 20% of the budget revenues. There are no coherent and
comprehensive plans to expand the resource horizon of the Federal Government.
As a result of the brewing fiscal crisis, the budget
deficit remains high at N1.86 trillion. This is equivalent to 21% of the budget
and 1.3% of GDP. The implication is that the Federal Government will need to
borrow more in 2018 to implement the budget. Debt Service is already putting a
strain on government revenues. The sum of N2.14 trillion has been
provided for debt service. This means that 30% of projected revenue will be
used in debt service.
Six, as has been with previous budgets, recurrent
costs and debt service will take a lion share of the budget as against capital
expenditure. Capital expenditure will be only 23% of planned expenditure. On
the other hand, 24% of the budget will be spent on debt service and 46% on
overhead and personnel costs. Thus over 70% of the budget will be devoted to
recurrent costs and debt service. This will not grow the economy and create
jobs.
It is, therefore, putting it mildly to say that the
2019 proposed budget is not developmental, will not pull Nigeria from the abyss
and may, indeed accentuate the misery and hopelessness the Nigerian people have
lived with since 2015.
There must be an alternative to this Budget. Nigeria
needs a government which understands how to run the economy in order to Get
Nigeria Working Again. Fortunately for the country, the Atiku/Obi team has
exactly that capacity and experience.
For the avoidance of doubt, an Atiku Presidency, come
2019, will present to Nigerians a people’s budget that will prioritize and
focus on the twin challenges of unemployment and poverty. Nigeria’s high rates
of unemployment, poverty and inequality represent both a significant distortion
in the economic system and a lost opportunity for critical national development
and could potentially threaten social stability.
Resolving these thorny issues requires a significant
departure from the APC-led government’s ways of doing things. #TheAtikuPlan
will accelerate growth rather than contract the economy to steer Nigeria out of
recession and to create opportunities for our youth to be self-employed.
The private sector will be a critical driver of economic growth and
#TheAtikuPlan will, therefore, act expeditiously to create a supportive and
enabling environment for businesses to invest and thrive.
We shall disrupt and improve the budgeting process to
facilitate more effective budget impact on the economy by increasing,
significantly, the share of capital expenditure in the budget to a minimum of
40% in the first instance. To facilitate increased capital spending, we shall
improve spending efficiency by cutting on recurrent expenses, by ensuring the
judicious utilization of all borrowed funds for economic diversification and
infrastructural development and by promoting more Public-Private Partnerships
in critical infrastructure funding.
#TheAtikuPlan recognises that Nigeria’s current
unprecedented fiscal crises, characterized by rising debt levels and revenue
shortfalls, have resulted largely from APC-led government’s poor management of
resources. We shall, therefore, undertake significant fiscal re-structuring
including a review of the current subsidy regime and of the monumental losses
to the economy arising from leakages from the operation of the foreign exchange
market, in order to channel resources into the critical sectors of the economy.
About The Author
Atiku Abubakar is former Vice President of Nigeria
and Presidential candidate of the PDP. See #Election2019:Atiku
Abubakar’s Profile
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