The Senate had passed the budget of the country on April 28, following the passage of the same bill by the House of Representatives on April 23, with an expenditure outlay of N4.493trn, up from the N4.425trn proposed by the executive, under former President Goodluck Jonathan. The budget was based on a $53 oil benchmark and an exchange rate of N190 to one dollar compared to the current oil price of about $47 and current official exchange rate of N199 to the dollar.
Although the budget outlined some commendable steps to achieve a better performance more drastic measures are required to make real impact and reverse the trend of increasing recurrent expenditure and decline in capital expenditure. According to analysts it would require making difficult decisions and reassessing the expenditure profiles of all arms of government especially the Executive and the Legislature.
In the 2015 Budget, provision for debt services increased while capital expenditure’s shrank. The proposed increase in debt service expenditure is 32.4 per cent compared to 20.3 percent in the 2014 budget estimate.
The cost of servicing debt has been on the increase in the past three years and is expected to gulp about 26 per cent of 2015 aggregate revenue of the federal government. The national Debt Management Office attributed the high debt profile to six factors: Inefficient trade and exchange rate policies, unfavourable exchange rate movements, unfavourable interest rate movements, poor lending and inefficient loan utilisation, poor debt management practices, and accumulation of arrears and penalties.
Given the significant decline in capital expenditure, it appears that funds were being borrowed to finance recurrent expenditure rather than developmental projects. As a percentage of aggregate expenditure in the 2015 budget capital expenditure accounts for only 14.5 per cent.
This is a sharp decline from 2014 when capital expenditure amounted to 23.7 per cent. In the light of the dwindling revenue from oil, the major source of the country’s income, the 2015 Budget was designed to enhance non-oil sector of the economy and also to raise tax revenues. Analysts say introduction of a luxury tax regime buttresses the fact that oil revenue is expected to play a less significant role in 2015 and perhaps going forward.
“We hope that government will implement the National Tax Policy and be consistent in its fiscal and monetary policies designed to diversify the economy and increase the country’s tax base”, an analyst said.
More efforts should be directed towards reversing the trend of poor budget implementation. For instance as at September 2014, only 60 per cent of the 2014 budget has been implemented. The legislature has a critical role to play in ensuring speedy passage of the Budget proposal. .
A seasoned financial analyst and management consultant, Dr Boniface Chizea, has said that Budget 2015 is well and thoroughly challenged as it will appear that the new administration is not particularly concerned about its implementation. According to him, the country has not had good record as a country with budget implementation. “We graft beautiful budgets that end up adorning shelves in offices without implementation and it is therefore little surprising that this country has not made the sort of focused progress it should have made by now.
President Buhari recently mandated the National Planning Commission to go ahead and reduce the recurrent budget in Budget 2015 but there was no talk regarding the N800bn that has been included in the budget for capital expenditure.
“The fact remains that there will be no development if all we do is concern ourselves with recurrent expenditure. What will facilitate development in the economy, it goes without saying, is the implementation of capital budget. The Capital budget in 2015 will be further undermined by the falling price in crude petroleum products.
“It will be recalled that the budget benchmark was $53 per barrel and most certainly it is not looking good the prospects of meeting this benchmark and once we have shortfall in this connection it goes without saying that the implementation of the Capital Budget is going to be further affected and therefore we should expect the President to submit a supplementary budget for legislative consideration as soon he appoints the ministers that will help him run the affairs of the country”, Chizea said.
He explained that the situation with the 2015 budget was further challenged with developments elsewhere and particularly the sentiments which expect the monetary authorities to undertake further devaluation of the national currency, adding that with this expectation, investments inflow particularly portfolio investments will be put on hold until this expectation is satisfied.
Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, corroborated Chizea that Buhari may soon present a supplementary budget owing to the significant shortfall in expected revenue occasioned by declining oil prices. The Federal Government will soon present a supplementary budget to the National Assembly has said at an interactive with Journalists in Lagos recently.
He said President Buhari’s administration would have little choice but to address the reality that oil accounts for the bulk of the nation’s revenue and that the sharp drop in the commodity’s price means that serious adjustments in the country’s currency (devaluation) would have to be made if the country is to survive the tough times.
Rewane reiterated his call that the Federal Government should remove the subsidy on fuel, pointing out that this would ease pressure on the naira. He said one of the most important decisions expected of the president by many to perform was removal of fuel subsidy.
This will reduce the pressure on the naira. “Cancelling crude oil swaps, recovering looted funds and other such measures are not enough; subsidy has to be removed,” he said. He noted that fuel subsidy takes 25 per cent of the country’s annual budget, adding that this was the major reason why the naira continues to be under pressure.
Emir of Kano, Mallam Muhammadu Sanusi II, has said that a major step towards addressing current fiscal challenges of the country was to entrench fiscal discipline in public governance, adding that one of the options open to the government to cope with the challenge of dwindling revenue from crude oil sales was complete ending of the fuel subsidy regime.
The emir who was a former Central Bank of Nigeria, CBN’s, Governor lamented that the subsidy regime was the most unfortunate thing to happen in the nation’s public finance system, as it constituted the easiest way to defrauding government through phony importation of fuel claims and siphoning billions of dollars from the public vault by fraudsters.
“One of the major challenges of the country over the years, in spite of its abundant resources, has been over-dependence on oil revenue and lack of structural reforms. ‘’We spend so much and generate little revenues. We can begin to restructure our economy by fixing the revenue chain and blocking the leakages.
And one way of doing that is by stopping subsidy because it gives room for corruption in our country, ‘’ the Emir said. To ensure that the yawning budget deficit in the fiscal year does not become totally unmanageable and thereby cause serious dislocations to developmental plans, Sanusi advocated the need for the Buhari-led administration to take some measures, including total removal of the subsidy as well as downsizing of the public service workforce, in order to conserve funds for capital budget implementation on socio-economic programmes that bear directly on the welfare of ordinary people.
An Abuja-based Development Consultant and Executive Director, OJA Development Consult, Abuja, Jide Ojo, in a note to The Guardian, titled: “Crucial Issues before President Buhari on Nigeria’s 2015 Budget”, noted that there are many challenges with the implementation of the 2015 budget. According to him the issue is the over reliance on oil revenue, a monoculture of Nigeria’s economy is having negative impact on the country.
“The low revenue base of the country to finance the budget has resulted in a situation where over 20 of the 36 states of Nigeria could no longer pay salaries of their workforce as and when due. This is because of the drastic reduction in the federal allocation to the states and local government. Even the Federal Government has had to borrow to pay salaries of its workers.
“Governments at all levels are most likely not going to be able to implement both the recurrent and capital expenditure of their budget as passed by their respective legislative arms. It is therefore incumbent on the government to prioritise its programmes and projects and take on those within its lean resources”, he said.
Ojo said the administration of Buhari will also do well to run a lean government be ensuring that the extant 42 member cabinet is trimmed down considerably within constitutional provision, adding that the cutting down on the number of political aides, presidential air fleet, State House budget, would conserve some fund.
The expert also advised the new government to roll out its economic blue print so that investors can have a clear direction of the government and how they can key into it, as well as widen its non-oil income by imposing tax on some luxury items like exotic cars, private jets, foreign wines and spirits (alcoholic drinks like champagne). “Government should remove subsidy on petroleum products and allow forces of demand and supply to determine the price. More public, private partnerships need to be encouraged.
Many of the current white elephants projects initiated by the outgone administrations should be discontinued and probably sold off and the proceeds used to fund some key infrastructural projects.
“The turnaround maintenance of our four petrol refineries should be of utmost priorities and if this cannot be achieved, they should be sold off. Government should also decisively deal with the challenge of oil theft and willful vandalism of oil and gas pipelines. Above all, early submission and passage of the budget is important and should be the new culture. Likewise is proper implementation of the yearly budgets.
This is an excerpt from The Guardian interview titled “Many troubles of 2015 fiscal plan for new govt”, he said. Also an Abuja based budget-analysis group, the Centre for Social Justice has evaluated the 2015 Federal Appropriation Act, describing it as “frivolous, wasteful and inappropriate”.
The group, which predicated its evaluation on the need to point out flaws in the budget with a view to effecting change in the 2016 Appropriation process, said the economy cannot truly grow when government’s major responsibility is to pay salaries without adequately investing in capital expenditure. “Capital expenditure is 21.36 per cent of the recurrent vote….we have got our priorities wrong.
The recurrent vote is ballooning at the expense of capital expenditure and all steps purportedly taken by previous administrations to reduce the recurrent vote has been in vain. No country geared towards development budgets this way”, the Centre warned. Lead Director of the Centre, Eze Onyekpere who made the analysis, also stated that Nigeria is now heavily indebted and consequently spending more money to service debts than investing in the development of the country.
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