ICAN Economic Discourse Revisits 2017 Budget

Olaseni Durojaiye reports on the discourse series recently held by the foremost body of professional accountants in the country, which brought together financial experts to appraise the 2017 budget

Though, the 2017 budget of the federal government has since been signed into law and is being implemented by the various ministries and government agencies, the document has continued to generate discourse among stakeholders and experts. One of such sessions was hosted recently by the Institute of Chartered Accountants of Nigeria, with the theme, “2017 Budget: Tool for Economic Recovery and Growth.” Participants appraised the document in relation to the Economic Recovery and Growth Plan, 2017-2020. They also looked at how to make the budgeting process more timely and effective, with the ultimate goal of increasing budgeting efficiency and execution rate. 

 

‘Trusted Partner’ 

In his welcome address, President of the institute, Malam Zakari, stated that the session was premised on ICAN’s role as a defender of the public interest and a trusted partner of governments, businesses, and society in a complex and challenging economic climate.

According to Zakari, “Professional accountants are always expected and relied upon to play a critical and strategic role in bringing the much-needed stability to business and society. It is not surprising, therefore, that there is very high expectation by employers, clients, regulators, other enlightened stakeholders and, indeed, even ordinary, ‘less informed’ Nigerian citizens, on all of us, Chartered Accountants, and the Institute of Chartered Accountants of Nigeria to contribute our knowledge and skills in getting Nigeria out of the woods.

“It is against this backdrop that the institute organised this ICAN Economic Discourse Series with the theme: 2017 FGN Budget: Tool for Economic Recovery and Growth to explore the 2017 Federal Government Budget aimed at analysing it and determining if its objectives of promoting recovery and growth of the Nigerian economy are achievable.”

 

Sessions

 The technical session was chaired by former finance minister, Chief Anthony Ani, FCA, while the guest speaker was chief consultant, B. Adedipe Associates Limited, Dr. Biodun Adedipe. The panellists were Professor Ndubuisi Nwokoma of the Department of Economics, University of Lagos; Professor Istifanus Zabadi of the Bingham University, Karu, Abuja; and General Manager of DEAP Capital Management and Trust Plc, Mr. James Egbe.

 

 It would be recalled that the country’s economy dipped into recession in 2016 and the business environment faced series of shocks arising largely from foreign exchange crisis, which severely affected operating cost, inflation and overall output. Following the fall in crude oil prices, FX shortage became a major headline as the country could not finance its rising import bills, while non-oil exports declined.

Against the backdrop, many discussions were held to examine how the Nigerian economy could recover from the recession and return to the path of growth. Strategies were proffered by experts. A common position that ran through many of the submissions at the different forums was the need for fiscal stimulus.

On its part, among other responses, the federal government responded to this and other challenges facing the country by putting together an Economic Recovery and Growth Plan, ERGP (2017-2020) with the conviction that its implementation would change the story of Nigeria. Besides, the federal government contended that the ERGP will move the country from import dependency to increased non-oil exports, greater youth employment, improved business climate amenable to international competitiveness, increased national and sectoral productivity, and significant improvement in living conditions.

 

Focus 

The government paid more attention to the following sectors: infrastructure, agriculture, manufacturing, solid minerals, real estate, medium and small enterprises, domestic refining of petroleum products, and gas.

 

Perspectives 

Participants at the ICAN discourse offered different perspectives on the economic issues, including the need to revisit the budgeting process with a view to making it timelier.  

Adedipe said, “There is evidence that the Nigerian economy is diversified.” He explained, “There is a large variety of economic activities that go on in Nigeria, each making tangible contributions to the GDP by the values they create. Non-oil sector contributed 91.1% to GDP in Q1 2017, while the oil sector did only 8.9%.”

According to him, “The six key contributors (totalling 76.55%) are:  agriculture (21.35%); trade (17.78%); Information Communication Technology (11.56%); manufacturing (9.74%); mining and quarrying (8.95%); real estate (6.32%). Summary puts agric at 21.35%, industries at 23.21% and services 55.44%. Agriculture and manufacturing are strengthening.”

Adedipe stressed, “The real problem of the Nigerian economy is not diversification of economic activities. Rather, it is the fact that her foreign earnings are not diversified, yet the country has persistently remained a net importer of non-oil goods and services, which has been added in recent years to the net importation of petroleum oil (excess of value of refined petroleum products over that of crude oil exported). The situation has been compounded by low confidence in the system.”

Adedipe insisted in his presentation, “There are five execution priorities that we should see reflect in the five budgets to be implemented during that period (2017-2021). These include the need to stabilise the macroeconomic environment, agriculture and food security, improve transportation infrastructure, energy sufficiency – power and petroleum products, and industrialisation with focus on SMEs.”

He observed that the seven specific objectives of the 2017 budget were to “expand partnership with the private sector; focus on critical on-going infrastructure projects; build special economic zones and industrial parks to accelerate innovation and wealth creation. Implement the agriculture Green Alternative Plan; deepen the mortgage system with Social Housing Fund; stimulate growth of SMEs; and provide social safety nets for the poor and vulnerable.”

In his observations, Adedipe noted, “Recurrent expenditure represents a chunk of spending at 40.15%, dominated by personnel cost at (65%); capital follows with 29.3%” of budget. He conceded that it was an improvement on previous budgets, with debt service and provisions for payment of arrears to local contractors at N1.84 trillion is 24.74% of total expenditure, but 36.22% of FGN revenue.

Speaking on the country’s rising debt profile, a topic that had generated significant debate among financial experts in the weeks preceding the discourse, Adedipe said, “All debt ratios point at rising debt service and repayment burden. Not worrisome now, but borrowings must be tied to projects, long-term, at concessional rates and utilisation strictly monitored.”

Adedipe also expressed concerns about the budget act and implementation scheduling and argued that the delay in the conversion of the Appropriation Bill into an Act was counter-productive and could hurt the efficiency and implementation of the eventual budget. He added, “The promise made during the presentation of budget 2017 to conclude the process at the beginning of the year, rather than half-year, should be sorted out between the executive and legislature.”

In his end notes, Adedipe stressed, “There is seeming correlation between investment in new/renewed infrastructure, economic activities, government, especially tax revenue and tax compliance…

“Underscoring all these is value-based budgeting as well as transparency and accountability in budget implementation.”

He maintained, “This is how to ensure that the 2017 budget of the Federal Government of Nigeria truly serves as implementation tool for the ERGP and drives the turnaround of the Nigerian economy to avoid a ‘double-dip’ i.e. reverse into a second recession. Again, the government has been engaging with the private sector and other stakeholders on its fiscal operations, and this should be continued. Whatever will strengthen stakeholder engagement and feedback should be actively encouraged.

“Real implementation resides with those entities that are impacted, and largely on how they respond to those policies. If they comply, the policy succeeds. If they cut corners, the policy fails! Only transparency can strengthen this.”

He emphasised the need for country to continue to push for performance-based budgeting, and reiterated that the major benefits of doing so were improved achievement of public programme objectives, better alignment between programmes and policies, and emphasis on holding senior officials accountable for deliverables in their line ministries.

 

Monetary/Fiscal Policy Breakdown

 In his paper, Ani stated, “Recession is essentially caused by severe breakdown to fiscal or monetary policy. In 1995 it was caused by the breakdown of fiscal policy and in 2017 it was caused by a breakdown of monetary policy and in both cases lack of coordination between fiscal policies (Ministry of Finance and Ministry of Planning) and monetary policies (CBN) both of which must work in tandem.”

He maintained that the latest recession was caused chiefly by, “Breakdown of our monetary policy, indiscipline and ineffective banking supervision. An attempt to implement monetary policy without correlation with sound fiscal policy led to profligacy in foreign exchange spending. Our policy makers were carried away to trade our naira denominated bonds in international market, thus, leading to volatility and instability in our exchange rate management. We were forced by J.P Moagan, United States President and IMF to devalue and thereafter IMF insisted on a further devaluation by way of flexibility. Thus, our currency was over devalued. The IMF flexibility chorus was orchestrated by the ‘There is no alternative (TINA)’ Yesmen in Nigeria.”

Drawing from his experience in government, the former finance minister stated, “In view of my experience of the revenue budget of the Babangida years, I always like to review all budgets starting with the composition of revenue.”

While lamenting the non-availability of correct oil revenue for 2017 “because no information as regards Nigeria’s Joint Venture Contribution (JVC) towards our equity oil is available,” he stated, “The key assumptions for the 2017 budget shows an oil production of 2.2 mbpd at a benchmark price of USD 42.5/b with an exchange rate of N305/US$.

“There was no mention of gas revenue in the assumption, even though Nigeria is the world’s sixth biggest producer of LNG. In 2013, we produced and exported 25 billion cubic meters of LNG. Other major producers of LNG are Qartar, Trinidad, Malaysia Australia, Russia, Indonesia and Oman. I am sure the gas revenues are part of the national budgets of these countries. By calculations, if our LNG exports, were converted to oil, our revenue from gas would be about $8 billion (N3 trillion) in terms of PPT and royalties.  I have only seen a paltry N30 billion as LNG revenue in the 2017 budget.

“At least we should properly account for LNG revenue after the heavy investment we have made in the project.”