Broken Budget

The first budget of President Muhammadu Buhari was already in trouble the day it was read! The budget had been by-and-large in substance prepared before the federal cabinet was sworn in-the ministers were only sworn in on November 11, 2015 whereas the budget was read at the National Assembly by the President on December 22, 2015. It was presented late-given that Buhari was sworn in on May 29, 2015, he had for reasons that remain inexplicable chosen not to appoint ministers until seven months later. He appointed a Director-General in charge of Budget on August 18, 2015, but in the uncertain economic times that Nigeria faced, the expectation was, in fact, that the new government would roll out a supplementary 2015 budget immediately it took office to reshape 2015 spending in line with its priorities, and then move swiftly to unfold a 2016 spending plan. Neither happened!

I recall being in the studios of CNBC Africa in May when Buhari was sworn-in along with a noted economist who confidently asserted that the new government would quickly submit a supplementary appropriation bill and then a new budget! The tendency for Lagos-based analysts and aspiring Abuja appointees to project their hopes and expectations as government policy in Abuja continues, even as those projections have proven over-and-over to be naïve and unrealistic! The regime in fact waited till the year was almost over, before submitting its 2016 budget proposals to parliament.

Immediately the budget was unveiled, it was apparent even to the fiscal layman that it would be faced with severe structural challenges. The budget was predicated on oil prices at $38 per barrel, but on the day it was read, and for most of the period since then, actual global oil prices have been closer to $28 per barrel, $10 lower than the budget assumed. Remember that oil sales account for 95 percent of export values and 75 percent of federation account receipts, which funds the budgets of the federal, state and local governments in Nigeria. The draft budget projected 2016 federal oil revenues of N820 billion on the basis of the budget oil price benchmark, which at least for 1/6^th of 2016 has already turned out to be unrealistic! Even at the budget oil price of $38 per barrel, the 2016 budget contained a deficit of N2.2trillion, which evidently given the earlier points made may turn out to be significantly higher, rising to perhaps N3.0-3.5 trillion. Yet, even at the N2.2 trillion deficit level, it was not clear how the conservative deficit figure would be financed. The writers of the budget hoped most of the budget (approximately N1.8 trillion) would be funded almost equally between domestic and foreign loans, while the balance would come from “loot recovery”-all three were not evidently realistic, especially the foreign component given the dissatisfaction of most foreign constituencies with our exchange rate policy and the likelihood that foreign borrowings would require the explicit or at least tacit support of the international financial institutions, including the IMF whose Managing Director, Christine Largarde had visited Nigeria to excoriate the regime and its central bank and finance ministries on the lack of exchange rate flexibility!

It also seems from all information I have garnered from oil industry insiders that even budgetary projections from petroleum profits taxes and oil royalties may not be realistic given current industry conditions. I have read an alarm raised by a top Customs and Excise official that revenue collections by the agency have so far been far below expectations, due to foreign currency shortages which have constrained importation and therefore limited customs revenue. I would also expect corporate taxes to be similarly affected, though there may be more scope to redress business-cycle declines in taxation to be offset by a wider tax net and more effective tax enforcement. The point of all these is to underline the point that even without current challenges to the integrity and credibility of the 2016 budget, it was already faced by several critical structural challenges!

And then there was the episode of the “missing budget”!!! The Senate started the mystery by raising the alarm that the 2016 budget submitted to it by the president was “missing”-on the day the allegation was raised in the Senate, any intelligent observer may have noted that Senate President Bukola Saraki left the chambers for a private meeting with the President. Seeing the public turn on it over what appeared to be a ridiculous claim of a federal budget “lost or stolen”, the Senators had to open up a little bit more accusing presidency officials, especially presidential assistant former Senator Ita Enang of being responsible for removing the version of the budget presented by the president, and replacing it with another version. Apparently the presidency must have been upset by shocking revelations of details of the draft budget, which in many cases compared unfavourably with the 2015 budget of ex-President Goodluck Jonathan, especially in relation to allocations to the Presidency!

However in a democracy, you don’t just retrieve a budget once it has been officially presented, based on the constitution, to the National Assembly! Eventually President Buhari did it the right way, by sending a letter to parliament incorporating a corrected budget version.

Unfortunately that was not to be the end of the budget mess. Revelations about widespread budget padding, repetitions, strange insertions and completely shocking figures such that led the minister of health to disown his purported budget have damaged trust in the document and the National Assembly has essentially washed its hands clean of the draft. The DG, Budget has lost his job and it seems the process is back to square one.

 

Opeyemi Agbaje