With the signing of the 2017 Appropriation Bill into law by the acting president, Professor Yemi Osinbajo, the effective implementation of the budget has commenced. Dubbed â€œBudget of Recovery and Growthâ€, can this financial plan put the economy on the path of recovery? Ndubuisi Francis tries to find out
The 2017 budget was signed into law halfway into the fiscal year, June 12. President Muhammadu Buhari had presented the draft budget to a joint session of the National Assembly on December 14 last year. It was passed by the legislature five months later, on May 11.
The signing of the budget had been delayed by disagreements over deductions by the National Assembly in the draft document from allocations to some critical infrastructure projects, including the standard gauge railway, Mambilla Power Project, the second Niger bridge, and Lagosâ€“Ibadan expressway. These were then reallocated to new projects introduced by the lawmakers.
There was also the controversy over the Medium Term Expenditure Framework and Fiscal Strategy Paper, which had come into the mix and played no mean role in the delayed passage of the budget.
As prescribed by the Fiscal Responsibility Act, the MTEF, whose submission and approval usually precedes the submission of the Appropriation Bill, was presented by the president. But it was rejected by the Senate as an â€œemptyâ€ document lacking in details. But Buhari went ahead to present the Appropriation Bill on December 14, while a more detailed MTEF was later submitted to the upper chamber.
The budget has an aggregate expenditure of N 7.44 trillion, representing an increase of 22.8 per cent over the 2016 budget of N6.06 trillion. This reflects governmentâ€™s plan to restore the economy on the path of sustainable and inclusive growth, details of which are encapsulated in the 2017 – 2020 Economic Recovery and Growth Plan.
It is predicated on certain key parameters, including an oil production of 2.2 million barrels per day and benchmark oil price of US$44.5 per barrel. Others are an exchange rate of N305 to the dollar, inflation rate of 15.74 per cent, GDP growth rate of 2.19 per cent, as well as nominal consumption of N87.95 trillion and nominal GDP of N107.96 trillion.
Presenting the budget to the public penultimate week, the Minister of Budget and National Planning, Senator Udoma Udo Udoma, said the budget with an expenditure outlay of N7.44 trillion, had Statutory transfers of N434.41 billion, Debt Service of N1.66 trillion, and a Sinking Fund of N177.46 billion to retire some maturing bonds. Non-debt recurrent expenditure is N2.99 trillion, and capital expenditure is N2.36 trillion, inclusive of statutory transfers.
The overall projected N2.36 trillion fiscal deficit is about 2.18 per cent of GDP, and within the three per cent threshold stipulated in the FRA. The budget deficit is to be financed mainly by borrowings, which have been projected at N2.32 trillion. Of this amount, N1.07 trillion (46 per cent) is intended to be sourced externally, while N1.25 trillion will be sourced domestically. The debt-service-to-revenue ratio is projected to be about 32.7 per cent.
The recurrent non-debt expenditure of N2.99 trillion is made up of personnel costs – N1.88 trillion (63 per cent), overhead – N219.84 billion (7 per cent). Service-wide vote pensions â€“ N89.98 billion (3 per cent); Consolidated Revenue Fund Pensions – N191.63 billion (6 per cent). Other Service-wide Votes – N138.70 billion (5 per cent).
Capital allocation is N2.36 trillion (inclusive of capital in statutory transfers). This represents 31.7 per cent of the total budget. Much of the capital provision is directed at projects that are aligned with the core execution priorities of the ERGP. Of the total approved for capital expenditure (principally infrastructure), more than N500 billion is directed to investments in roads, power and housing projects. About 65 road projects are included in the budget.
Some major capital expenditure allocations include: N553.71 billion for Power, Works and Housing; N241.71 billion for Transportation; N150 billion for Special Intervention Programmes; N139.29 billion for Defence; N104.24 billion for Water Resources.
The sum of N81.73 billion is for Industry, Trade and Investment; N63.76 billion for Interior, and N151.91 billion for Education (including Universal Basic Education Commission); N55.61 billion for Health; and, N103.79 billion for Agriculture.
Some major initiatives in the 2017 budget include: N100 billion provision for a new Social Housing Programme; N46 billion for Special Economic Zone Projects to be set up in each of the six geopolitical zones to drive manufacturing /exports; N16 billion for revival of the Export Expansion Grant. Other major initiatives include: Special Intervention Programme (inclusive of the Home Grown School Feeding Programme, Government Economic Empowerment Programme, N-Power Job Creation Programme, Conditional Cash Transfers and Social Housing Fund) â€“ N400 billion.
There is also a provision of N148 billion mostly for counterpart funds on projects to be financed by China for various railway projects (Lagos-Kano, Calabar-Lagos).
Similarly, there is a N40 billion service-wide provision to settle reconciled outstanding electricity bills of Ministries, Departments and Agencies as part of overall strategy to revamp the ailing power sector.
Based on the key assumptions, the 2017 budget envisages a total revenue of N5.08 trillion, exceeding the initial executive proposal by 2.9 per cent and 2016 projection by 31.9 per cent. The projected revenue receipt from oil is N2.122 trillion and non-oil is N2.96 trillion.
The contribution of oil revenues is 41.7 per cent compared to 19 per cent in 2016. This is driven mainly by Joint Venture Cash Call cost reduction, higher production and price, exchange rate and additional oil-related revenues. 11 per cent of projected/revenue is expected from is recoveries of looted/misappropriated funds and fines.
Recapitalising BoI and BoAÂ
One of the major efforts to help the real sector in the form of tax credits, as captured in the budge, is the provision of N15 billion to recapitalise the Bank of Industry and Bank of Agriculture to strengthen their capacities to support Micro, Small and Medium Scale Enterprises (MSMEs).
Nonetheless, a fresh controversy is brewing, which may affect the implementation of the budget. This has to do with the power of appropriation, which has been called into question with the passage of the 2017 budget.
After signing the budget, Osinbajo criticised the legislature for altering the budget proposal sent to it by the executive. He argued that the parliament was not constitutionally empowered to alter the budget proposals submitted by the executive.
Some of the key projects affected by the National Assemblyâ€™s alterations included allocations to the Lagos-Ibadan expressway, the Mambilla power project, railway projects, and the second Niger Bridge.
Before signing the budget, the executive and legislature were said to have struck an agreement that the National Assembly should restore all the affected projects, upon the submission of a request by the executive, in a process known as Virement. But with the open criticism of the lawmakers and the reported move to seek the intervention of the Supreme Court on whether or not the parliament has the power to alter the budget, the country might be in for a long walk in the effort to revamp the troubled economy.
Besides, there are concerns over the $44.5 per barrel benchmark set in the budget. Although oil prices rallied back to about $45 per barrel on Friday, they touched $42.05 per barrel, their lowest level since August 2016.
The Organisation of Petroleum Exporting Countries and other producers agreed to reduce output by 1.8 million barrels per day from January for six months, and in May, it extended the deal for a further nine months until March 2018. However, oversupply has persisted, particularly with output rising in Libya and Nigeria, which were exempt from the cuts due to unrest that had limited their output.
OPEC and non-OPEC oil producersâ€™ compliance with the deal to cut output reached its highest in May (106 per cent) since they agreed on the curbs last year. OPEC supplies, however, jumped in May as output recovered in Libya and Nigeria. Libyaâ€™s oil production rose more than 50,000 bpd to 885,000 bpd after the state oil company settled a dispute with Germanyâ€™s Wintershall.
Nigeriaâ€™s oil production is also rising as exports of the countryâ€™s Bonny Light crude are set to reach 226,000 bpd in August, up from 164,000 bpd in July. The situation is raising apprehension as to whether the benchmark price for this yearâ€™s budget is feasible.
Of the N5.08 trillion revenue in the budget, the projected revenue receipt from oil is N2.122 trillion. This seems massive. To achieve this, both the quantity and price components must be consistent with budgetary assumptions.
Minister of Finance Kemi Adeosun had already assured that her ministry was ready to release N350 billion immediately as capital vote. But this has drawn cynicism from some quarters, bearing in mind that the same assurance was given after the unveiling of the 2016 budget, but no releases were forthcoming for close to two months, and this was explained away.
Udoma has disclosed that efforts were being made to find the resources required. He said, â€œWe are challenging our revenue generating agencies, particularly the FIRS and Customs, to improve their efficiencies and broaden their reach so as to achieve the targets set for them in the 2017 budget.
Most importantly, we will strive to maximise the revenues we can generate from the oil and gas sector as it is clear that the foreign exchange generated from the sector is critical for our plans to diversify to the non-oil sectors.â€
Time will tell if things would pan out has the federal government has planned.