Postscript by Waziri Adio
On the day that marked his sixth month in office, President Bola Tinubu presented his first full-year budget proposal to the National Assembly. The N27.5 trillion budget he proposed, Nigeria’s largest so far in Naira terms, continues the problematic tradition of unrealistic budgeting, anchored on revenue projections that are hardly met and on debts and deficits that always end up bigger than anticipated.
Nigeria sorely needs fiscal consolidation—we need to slash budget deficits and stop the accumulation of debts. President Tinubu has opted for the opposite direction. His early actions on petrol subsidy removal and foreign exchange rates unification, ordinarily, should have strengthened his hands in the pursuit of fiscal discipline. But his expansionary instincts clearly got in the way, and this suggests that Nigeria will remain in a fiscal hole for much longer.
In presenting the highlights of the 2024 money bill, both the president and the Minister for Budget and Economic Planning, Senator Atiku Bagudu, gave some nice spins to the budget christened, expectedly, as the Budget of Renewed Hope. But highlights are not all there is to budgets. Without having access to the complete budget document, the rest of us cannot independently ascertain if there is a reason for hope at all, not to talk of a renewed one.
The full budget is not yet in the public domain. As at 7 p.m. yesterday, only three documents were available on the website of the Budget Office of the Federation: the president’s budget speech, a PowerPoint presentation by the budget and planning minister, and the 2024 to 2026 Medium Term Expenditure Framework (MTEF)/Fiscal Strategy Paper (FSP).
A member of the National Assembly alleged in a BBC interview that even legislators do not have the full budget. At least one of his colleagues has countered the claim. Interestingly, both chambers of the National Assembly have passed the appropriation bill for second reading.
All of these—the known content of and the circumstances surrounding the 2024 appropriation bill—raise some critical issues. I will address some of these issues under three broad headings in this preliminary comment on the 2024 budget proposal.
Imperative of rethinking budgeting in transition years
The 2024 appropriation bill is the third budget-related interaction between the Tinubu administration and the legislature within six months. On 12th July, the president sent a request to the National Assembly to amend the N819 billion supplementary budget for 2022. On 31st October, Tinubu requested for the passage of a N2.17 trillion supplementary budget for 2023. Then on 29th November, he presented the 2024 budget proposal, expected to be operational on the first day of next year.
It is conceivable that we might have three different budgets in operation at the same time. At least some of the capital items in the supplementary budgets for 2022 and 2023 are likely to stretch into the new year. This will be untidy for accounting and tracking purposes. This probability again questions the rationale for including some capital items in the 2023 supplementary budget when they can be accommodated in the 2024 budget.
Working simultaneously on a supplementary budget and a full-year budget may also explain why the complete version of the 2024 proposed budget is still not available. It is clear that the preparation and the passage of the 2024 budget are being rushed in both arms of government. Speed can be a virtue, but not in a matter as sacred as budgeting—an issue we shall return to shortly.
However, the main issue here is that an outgoing government should not be making budgets for the period it will not be in charge. It is reasonable to expect that the priorities of the new administration will be different. This could arise from promises made during the campaigns, a different style of governance or the need to cushion the impact of initial reforms undertaken (in this case, the removal of petrol subsidy).
To give a new administration a measure of flexibility at take-off, we may need to pass a law that budgets in election/transition years should be for a maximum of six months. For example, the term-barred administration of President Muhammadu Buhari should have prepared a budget till only June this year. The same should apply to a president standing for re-election, as there is a possibility a sitting president can lose, as it happened in 2015. This practice is already in place in many countries, including in Ghana.
Having a different approach to budgeting for a transition year should serve the dual purpose of avoiding government from shutting down and allowing the next administration the freedom to design a half-year budget that aligns with its focus and priorities. It will also save us the ungainly possibility of two or three budgets running concurrently. Also, it should provide an additional incentive for the new administration to constitute its cabinet on time.
Budgets deserve more than perfunctory treatments
President Tinubu requested the National Assembly to treat his 2024 budget proposal with “reasonable dispatch” so that the budget can come into effect from 1st January 2024. It is conceivable that his request will be granted. Already, there is a kite flying around that the budget would be passed before the legislators proceed on Christmas break.
The two supplementary budgets were attended to with utmost, almost embarrassing, dispatch. The amendment to the 2022 supplementary budget took about a day. The 2023 supplementary budget was concluded within a week: submitted to the National Assembly on 31st October, passed by the legislators on 2nd November, and signed into law by the president on 8th November. While this fast-food approach to processing appropriation bill can be excused for virement and supplementary budgets, it will be suboptimal for year-long budgets.
The president anchored his appeal on the need for the two arms of government to continue to work harmoniously and promptly “to serve and to benefit the people of our beloved country.” True, we need both the legislative and executive arms to keep working together for the benefit of Nigerians but also as strong checks on each other. Neither the principle of separation of powers nor the interest of Nigerians will be served when the budgeting process is reduced to a perfunctory, hollow exercise.
Appropriation is at the core of legislative powers. That is why the legislative arm is said to have the power of the purse, even when it is the executive arm that initiates and implements budgets. Appropriation profoundly brings together the three functions of the legislature: representation, oversight and legislation. Budgeting allows them to ensure that the interests of the constituents are served, to provide oversight over the executive, to make laws for allocation of resources (that is why the appropriation comes as a bill that later becomes an act). Such a grave responsibility should not be handled with the levity witnessed in recent time.
It is good to have a January to December budgeting cycle, and a lot of work was done to get us to this predictable state. But the legislature needs enough time to work on the budget proposals not just in terms of general debate but most importantly in terms of the heavy lifting undertaken by various committees where the budgets of different agencies are expected to be examined in granular detail before recommendations to the appropriation committee, then passage by each of the two chambers, harmonisation and passage of the harmonised version, then transmission of the clean copy for presidential assent.
The legislature needs ample time to do all of these well, and this is why budget proposals are usually presented to the National Assembly in late September/early October. The executive also needs enough time to scrutinise what is transmitted before the president signs the bill into an act (otherwise, all sorts may creep into the signed budget). The delay this year is fully on the executive, perhaps because it is new. Hopefully, this will be corrected in subsequent years.
Of rosy projections and suffocating debt service
The assumptions underlying the budget have already been passed in the 2024 to 2026 MTEF/FSP. The legislators could have exercised more rigour in aligning the MTEF/FSP with reality and could have done more to start the process of pulling us away from the path of voodoo budgeting. For 2024, oil price benchmark is projected at $77.96 per barrel; oil production, at 1.78 million barrels per day; inflation, at 21.40%; and GDP growth rate, at 3.76%. Apart from the benchmark oil price, the others are very rosy projections.
The performance of the 2022 budget and of the 2023 budget from January to September, as contained in the 45-page presentation by Senator Bagudu, shows that past projections were mostly off-target, not just in terms of underlying assumptions but most significantly in terms of revenue projection. We have always fallen short on revenues, which inexorably leads to more debts and wider deficits, and subsequently greater allocation to debt service. Beyond just hope, there is little indication that 2024 will be different.
The 2024 appropriation bill projects that total revenue for the Federal Government will jump from projected N11.04 trillion in 2023 to N18.31 trillion in 2024, an increase of 66%. This puts the budget deficit at N9.18 trillion. Compared to the N13.78 trillion deficit of the 2023 budget, that is a reduction in deficit by 33%. If the deficit can be kept as projected, that is some progress. But I won’t hold my breath. Revenue always underperforms, leading not just to increased deficits but to net negative financing (read: ways and means).
In a way, the expected increase in revenue is not totally baseless. It is predicated on gains from removal of petrol subsidy, Naira devaluation and expected jump in oil production. But to expect Federal Government’s share from the main pool to jump from N4.73 trillion in 2023 to N11.99 trillion in 2024 may be a bit of a stretch, especially when future oil revenue has been encumbered through loans, prior subsidy and some measure of subsidy resurfacing.
There are more concerning areas. Even as projected, the 2024 deficit is 50.11% of the expected revenue. And if revenue underperforms, as it is likely to, the deficit is likely to grow bigger. The projected deficit is 3.88% of Nigeria’s GDP, above the 3% threshold allowed by the Fiscal Responsibility Act of 2007. To fund the projected deficit for 2024, the government expects N298 billion from privatisation proceeds, N1.05 trillion from loans and grants from multilateral agencies, and N7.83 trillion as new loans.
The thing about budgeting is that what goes in at one end, comes out at the other. We have been designing and implementing budgets with bloated revenue expectations ostensibly to mask the extent of the deficit. We have been playing an optical illusion game with ourselves. We bridge the resultant gaps by binging on debts, which not only widen the deficits, but lead to hike in subsequent allocation to debt service. In a piece in this column on October 15th, I showed that debt service went up by 593.36% between 2012 and 2022.
The profile of debt service in our budget continues to grow astronomically. The sum of N8.5 trillion was allocated to debt service in the 2024 proposed budget (broken down as N8.25 trillion for debt service and N243 billion for sinking fund). That’s 31% or close to a third of the total budget for the year. Debt service also constitutes 46% of the projected revenue, which from experience is likely to fall short. Debt service is almost at par with the proposed capital expenditure of N8.7 trillion (unlikely to be met too). Debt service is 31% higher than personnel allocation of 6.48 trillion. Interestingly too, hard expenditure (debt service and personnel) will gulp 82% of projected revenue.
The presidency highlighted allocations to some strategic sectors: N3.25 trillion to defence and security, N2.18 trillion to education, N1.33 trillion to health, N1.32 trillion to infrastructure, and N534 billion to social development. This is commendable, even when the allocations to education and health are still below recommended levels. But all these highlighted strategic allocations sum up to N8.61 trillion. We may need to remind ourselves that the allocation for debt service alone is N8.5 trillion.
Clearly, debt service has become a tightening noose around our neck. And the more debts we take, the tighter the noose will become. This is not an argument for the repudiation of our debts. But we have to embrace the wisdom of the need to stop digging when inside a hole. We need to significantly and realistically bump up revenue. Yes, a tax and fiscal reform initiative is on, but until it starts yielding adequate fruits, we need to be more prudent in allocating, and spending, available resources. Until the full budget is out, it is difficult to know if this government really gets the last part.