Budget 2019: The Hidden Monsters


Wednesday, February 13, 2019    07:15 AM / Proshare Content 


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As far as budgets go the Federal Government’s Budget 2019 is modest, mild and uninspiring; it has a number of broad flaws: 

It fails to excite vision, it fails to ignite passion and it simply tries to steady a course that has seen the economy stall to a growth rate of about 2% (max-out); a figure which the latest IMF estimates expect to be the growth index for 2019 (more of the same). Why and where will growth come from? The budget has rested on a cushion of figures rather than a philosophy of progress.


Chart 1: Nigeria’s GDP quarterly growth projections for 2019 (%)

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Source: FDC


Thinking outside the box or simply throwing the box away: 

The late Chief Obafemi Awolowo, one of South Western Nigeria’s heroes of modern fiscal management is credited to have succeeded in growing the economy of the South West in the mid 1950’s to late 1960’s on the basis of promoting a massive surge in human capacity development through free education. The intricate logic of the Awolowo social investment paradigm was that of building human capacity which in turn would raise local productivity on the one hand and increase incomes and tax naira to fund more human capacity development on the other.


What most saw as free education was actually citizen productivity paid forward. It was a radical idea that had sound logic in economics.

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It is this type of bold and unconventional thinking that is absent in the 2019 budget, as it is in previous budgets and social intervention programmes built into the fiscal frameworks (and open to political distortions from all sides even as the intent remains genuine – and since when did intentions trump consequential impact or/and optics?). A large increase in educational spending would expand the earning capacity of Nigerians in productive areas such as:

·        Artisanship
·        Entrepreneurship
·        Science
·        Industry
·        Teaching
·        Engineering
·        Law
·        Architecture
·        Medicine/Pharmacy
 ·        Farming/Agriculture


Educational spending would pay its way by raising Nigerian workers to higher levels of income which would eventually be taxed at higher marginal rates. Entrepreneurs with better skills and larger visions will generate higher revenues that would produce more tax earnings for government by way of higher CIT and PIT. 

The paltry 7% of revenue projected for the education sector in the 2019 budget clearly reveals the lack of radical reasoning amongst economic managers. Ghana, Nigeria’s neighbor spends about 23% of its budget on education, thereby explaining why rich Nigerians spend about a $1billion annually training their children in that country. 

Budget 2019 does not in any creative way address the challenges of rising unemployment. Nigeria’s unemployment figure in Q3 2018 was estimated at 23.1%. The economy has grown the absolute number of unemployed people by 15 million in the last three years, meaning that an average of 5 million new jobs need to be created annually to keep unemployment rate at its present level. To do this the economy must grow by between 5 and 6% per annum or slightly lower than India’s recent 7% growth rate in 2018 (Nigeria’s recent growth rate was 1.9% in Q3 2018). 

Tope Fasua, the 47 year old presidential candidate of the Abundant Nigeria Renewal Party (ANRP) in the forthcoming February 2019 elections argued in a well thought out piece (see below) that the 2019 budget should have shown stronger character by growing to at least N15trn or $4.92bln. He insists that a country with the unemployment levels shown by Nigeria ought to be thinking big, fast and smart. There are critics who have a contrary view but when we realize that the local currency slumped against the US dollar from N160/$ in 2014 to N305/$ in 2017, the real size of Nigerian budgets in dollar terms has actually been declining, despite nominal naira increases (until the 2019 budget which fell from N9.3trn in 2018 to N8.7tn in 2019, Nigerian budgets have risen annually in absolute size).


Chart 2: Nigeria Budget 2000-2018 in $’bln


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Chart 3: Nigeria’s Unemployment rate 2014-2018

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Source: National Bureau of Statistics (NBS)


1. Budget 2019 relies heavily on an oil output of 2.3million barrels per day. In a world of excess crude supply; falling demand in major Asian markets of China and India; and with America exporting oil at an unprecedented level of over 10 million barrels per day, the budgets projection of output at 2.3million barrels per day is extremely optimistic.


The Organization of Petroleum Exporting Countries (OPEC) in which Nigeria is a member, has already agreed a cut back of daily oil supplies by 1.6mln barrels per day (by December 2018 cut backs had reached 750,000 barrels per day with Saudi Arabia accounting for half this amount).


Nigeria and Libya that were previously exempted from cut backs have now been included in the basket of nations that would need to reduce supplies to stabilize international prices.


2. Following from the previous observations, Budget 2019’s projection of an average oil price of $60 per barrel reveals a curious statement and contradiction about Nigeria’s revenue expectations – On the one hand, it reflects a dependence while on the other it suggest a recognition that to diversify, we need oil money. Therein lies the dilemma ….. and the exposure of the Nigerian economy to vagaries off its trade balances versus it current accounts balances/position.


The economy will continue to be subject to shocks based on its inability to attract inflows even in an era of global liquidity glut because it has a low current account balance. I will address this later.


The soft global economy is likely to continue right through H1 2019. Admittedly oil price is about $62.70 at the beginning of the week which started on Monday, 21 January, 2019 but that has been the outcome of recent sharp cut backs in supply, weak global demand may still see prices drop below the $60 per barrel budget threshold.


3.  The Fiscal deficit built into the 2019 budget will hurt growth and private sector expansion. Over the last four years the deficit as a proportion of GDP has risen and led to higher domestic interest rates chased by larger Treasury bill (T-bill) issues and slower GDP growth. The slower growth in GDP has shown up in the worsening unemployment statistics.


Chart 4:  Nigeria’s fiscal deficit as % of GDP ratio 2008-2017

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Source: Central Bank of Nigeria (CBN)


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Previous Proshare Confidential Report (s)

1.              Surviving Uncertain Times in the Nigerian Financial Market

2.             The Rich, The Poor and Buharinomics

3.             AMCON and Financial Services Debt Burden in Nigeria – Jul 2018

4.             Poverty Tracker and Nigeria: Raising The Red Flag – Jun 2018

5.             POCKET Economics: Addressing Income Inequality – May 2018

6.             The Silent Drug Epidemic: A Gathering Storm - Apr 2018 

7.             Judging IMF’s Position on Development Indices – Mar 2018

8.            Money Market: The Folk Road – Feb 2018    

9.             The Headache of Missing Targets – Jan 2018

10.         2018 Outlook on the Nigerian Economy: The Need for an Even Keel – Dec 2017

11.          Nigeria External Economy and the White Noise of Import Dependency – Nov 2017

12.         States and the Rising Weight of Debt – Oct 2017

13.         Money Supply: Reeling from Policy Response – Sep 2017

14.         How Rail and Energy Will Deliver a Robust Economy for Nigeria – Aug 2017

15.          Too Big Government: The Hysteria of Developmental Quagmire – Jul 2017

16.         The Nigerian Debt Conundrum and the Need for Automatic Stabilizers – Jun 2017

17.          Article IV vs. ERGP - The Third Way – May 2017

18.         Lifting The Veil off The Financial Sector – Apr 2017

19.         Towards An Economic Model for Nigeria; Going Beyond Symptomatic Responses - The Panama Model – Mar 2017    

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Proshare Nigeria Pvt. Ltd.


Related Links

1.       2019 Budget Speech Delivered By His Excellency President Muhammadu Buhari

2.      Breakdown Of The 2019 FGN Budget Proposal

3.      HMBNP 2019 EBP Public Presentation Reviewed 19.12.18 FINAL – PDF

4.      Nigeria’s 2018 – 2020 MTEF & FSP

5.      FG releases Economic Recovery Plan for Nigeria

6.      Nigeria’s Vision 20:2020: Review and Prospects With Two years To Go

7.      Halfway to Vision 20: 2020

8.     NESG Announces NES#24 Startup Pitching Event

9.      24th NESG Summit to focus on making Governance and Institutions ...

10.  My Takeaways From Nigeria’s Budget 2019 - Atiku

11.   The Nigerian Budget 2019 And Issues Arising - Sanda

12.  2019 Budgets: Update on States in Nigeria (1)

13.  2019 Budget to Place Nigeria on Path of Inclusive and Sustainable Economic Growth - Buhari

14. Subpar Budget Revenues From Oil

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