Budget 2018: Something to Cheer?

With a rapidly growing population, Obinna Chima wonders if Nigeria’s 2018 budget has what it takes to drive the much-desired growth in the country

The National Assembly last week finally passed the 2018 budget after a prolonged delay.
Interestingly, while Nigeria is still to pass its 2018 budget, countries such as the United States of America and Isreal have already finalised their 2019 budget.

Delays in passing budgets, which have almost become a norm in Nigeria, have always been a major hindrance to the successful implementation of the country’s spending plans.
A budget is a country’s most important document as it provides the needed hindsight on the policy objective of the government.

According to details of the proposed 2018 budget, aggregate expenditure was hiked by about N500 billion from the N8.61 trillion that was presented by President Muhammadu Buhari last year, to N9.12 trillion ($30 billion at N305/$), as the lawmakers increased the oil benchmark from $45 to $51 per barrel, but maintained oil production at 2.3 million barrels per day and the exchange rate at N305 to the US dollar.

The Senate President, Dr. Bukola Saraki had explained that the increment in the 2018 budget was done with due consultations with the executive.

Of the N9.12 trillion budget, the sum of N530.42 billion was earmarked for statutory transfers, while N2.20 trillion was for debt service, of which N190 billion is for the sinking fund for maturing loans. Recurrent (non-debt) expenditure got N3.51 trillion while the sum of N2.87 trillion was set aside as contribution to the development fund for capital expenditure (exclusive of capital expenditure in statutory transfers).

The sum of N1.95 trillion was earmarked for the fiscal deficit while the deficit as a percentage of Gross Domestic Product (GDP) was put at 1.73 per cent.

Other highlights of the budget included the provision of N350 billion for Special Intervention Programmes of the federal government.
The sum of N45 billion was set aside for the North-east Intervention Fund to help address the problems created by the Boko Haram insurgency, while N78 billion was earmarked for military operations across the country including Operation Lafiya Dole in the North-east and other operations of the Nigeria Army.
The sum of N100 billion was earmarked for Zonal Intervention Projects as well as N15 billion for the payment of local contractors’ debts.

The 2018 budget further set aside N193.33 billion for the Power Sector Reform Programme of the federal government, including N10 billion for the settlement of electricity bills of ministries, departments and agencies of government.
However, despite the increase in the aggregate expenditure in Nigeria’s budget, the size of the country’s budget compared with its population, remains abysmally low.

That is, with a population of about 198 million, a breakdown of the country’s 2018 budget will not be sufficient enough to drive the desired economic growth and impact positively of the lives of individuals in the country.

Unemployment in Nigeria has risen by 44 per cent, from 14.4 per cent in the first quarter of 2017, to 18.8 per cent in third quarter 2017, just as underemployment also increased by 0.8 per cent, to 21.2 per cent in Q3 2017, from 20.4 per cent in Q1 2017.

The Misery Index, which measures well-being in an economy has also worsened in Nigeria, as it rose to 53.34 per cent in 2018, from 51.05 per cent last year, just as income inequality widened by 7.23 per cent to 43 per cent in 2018, from 40.1 last year.
Also, income per capita in Nigeria fell from $2,562.5 in 2017 to $2,457.8 in 2018, while labour productivity worsened from -1.4 per cent in 2017, to -0.9 per cent in 2018.

However, the Human Capital Index rating for the country rose to 152nd place, from the 151st position last year, while life expectancy was put at 53.05, according to a recent report by the Financial Derivatives Company Limited (FDC).
Therefore, in absolute terms, when compared with the budget of other top African economies as well as its other peers outside Africa, realistically, the Nigeria’s budget size may not be able deliver the transformation required by the country and fix its ailing infrastructure.

Peer to Peer Comparison

Findings by THISDAY showed that despite the country’s expansionary budget of $30 billion, it still lags behind its peers.
For South Africa, with a population of about 56 million and income per capita of $12,860, the country budget a total of $130 billion (1.67 trillion rand) in its 2018 fiscal year.

In the same vein, while Egypt with a population of almost half of Nigeria’s size at 96 million and per capita income of $2,505.12 currently has a budget of $73 billion, just as Angola, with a population of 40 million and per capita income of $6,880, made provision to spend $41 billion (9.6 trillion Kwanzas) in its 2018 national budget.

Similarly, while another fellow oil producer in the continent, Algeria, with a population of just 40 million and per capita income of $15,000, has a national budget of $73 billion, the size of Libya’s budget with a population of about seven million is $31 billion.

In a related development, a comparison of Nigeria’s latest budget size to that of its other peers described as MINT (Mexico, Indonesia, Nigeria and Turkey) nations revealed that Nigeria is still punching far below its weight.
Jim O’Neill, an economist and former Goldman Sachs chief had coined the acronym to reflectnations that emerged from the Next 11, or N11, as the next economic giants.

But other countries in this league appear to have left Nigeria behind. For instance, while Mexico with a population of 128 million budgeted to spend $277 billion (5.28 trillion pesos), in its 2018 fiscal year; Indonesia with a population of 261 million also proposed to spend $164 billion (2,220.7 trillion Rupiah) in the same year; and Turkey whose population is 80 million also made a national budget estimate of $198.8 billion (762.8 billion Lira) in 2018.

Something to Cheer?

To Dr. Ikechukwu Kelikume of the Lagos Business School (LBS), there is nothing much to celebrate about passing the country’s 2018 budget because of what he described as the unnecessary delay.

“We have wasted the first five months. So, if you are passing the budget now and you are almost entering the third quarter, it creates problem for planning. So, there is a problem before you even pass the budget, which is that it slows down growth. Most companies generally plan at the beginning of the year.

“The government is the biggest spender. So, if government spending doesn’t come out early enough, it means it is a problem for firms,” Kelikume said.

Going forward, he urged all those responsible for preparing and passing the annual budget to start “at the beginning of the year because planning is done at the beginning of the year.”

He added: “For example, the preliminary work for next year’s budget has to have been finalised by now. So, mid 2018, as a government, you outline what you are going to do next year and that helps inform the operations of the private sector. But here, the reverse is the case and it is a worrisome trend.”

Also, a former governor of Cross River State, Donald Duke had lamented the effect of Nigeria’s increasing population. He said the country’s population was increasing while its budget had shrunk in both volume and value. He described the decrease in government’s budget in the light of Nigeria’s growing population as a disaster waiting to happen.

Duke, who compared the $25 billion budget of ex- President Shehu Shagari to the $23 billion budget proposed by President Muhammadu Buhari in 2018, concluded that Nigeria’s present expenditure was not enough to cater for its growing population.

He had said: “So our landmass is shrinking but our population is growing. As if that was not bad enough, 38 years ago, 1979, between 79 and 83, we had the Second Republic. We had President Shagari and the annual budget for the four years he spent in office was $25 billion. So he spent a $100 billion in his four years in office. Our population at that time was 90 million. Today, our population is 193 million inching towards 206 million but our budget is $23 billion.

“In other words, over a spate of 38 years, our population has more than doubled but our public expenditure has shrunk both in volume and in value. If this is not a wake-up call for the disaster that looms ahead of us, then I wonder what will be.”
In assessing the country’s 2018 budget, analysts at CSL Stockbrokers stated that they do not think the target oil production of 2.3mbpd would be reached.

“Targeted non-oil revenues also appear ambitious in our view and are unlikely to be achieved. Non-oil revenues have historically been lower than planned (over the last five years, the authorities have collected an average of 80% of what they had been aiming for, in terms of non-oil revenues).

“Delays in passing budgets have always been a major hindrance to the successful implementation of Nigeria’s previous spending plans. We recall that the 2017 budget was passed in May, which was when releases for capital expenditure of N2.18 trillion commenced,” the firm added.

The foregoing clearly shows to enhance productivity, encourage entrepreneurial development and stimulate growth in a country with high youth population, there is a need to dismantle the current structure of Nigeria’s budget to effectively cater for its rapidly growing population.