There is certainly more to the postponement of President Goodluck Jonathan’s budget speech to the National Assembly, than meets the eye. Like an annual ritual that never fails, the postponement of the November 12, 2013 date when the President was scheduled to present the 2014 Appropriation Bill once again highlighted the frosty relationship between the executive and legislative arms of government at the federal level. No official reason was given for the decision, but it is a safe bet to assume it was somehow not unconnected with the ongoing crisis within the ruling Peoples Democratic Party (PDP) and the battle for supremacy in the politics of 2015. Fighting over the budget is a great disservice to the Nigerian people. Nigeria has suffered immeasurably from the scourge of predatory politics. Stakeholders must therefore strive to make the democratic process beneficial to ordinary Nigerians.
Initial disagreements by lawmakers in both chambers over the poor implementation of the 2013 Budget, were compounded by fundamental issues about the 2014 to 2016 Medium Term Expenditure Framework (MTEF). To which could be added wrangling amongst ministries and departments over spending cuts. Finance Minister, Ngozi Okonjo-Iweala, gave the President a budget that envisages a 10% cut in public spending. The government wants to cut federal spending from 5 trillion naira (US$31billion) to N4.4 trillion next year, and shift spending from recurrent expenditure such as salaries to capital and infrastructural investment. The two targets are the public sector payroll and pay-outs on the fuel subsidy regime; of which the public sector wage bill is the most politically charged; and for good measure.
The political backdrop; the formal start of the national election campaign is not propitious for such austerity. A 10% cut in public spending at the start of election campaigns defy political gravity and would amount to an audacious display of sheer nonchalance towards the electorate. The PDP insatiable appetite for power cannot be guaranteed against public perception of insensitivity on the part of the government. Little surprise even PDP lawmakers, with their predilection for ego-tripping, are up in arms against the President’s budget. Lawmakers of the splinter PDP have even vowed to boo and jeer the President to exact revenge for the shabby treatment the leadership of the nPDP received when they came to present their grouse to the House leadership.
Against this backdrop, it is worth pointing out that Nigeria’s economic difficulties are primarily internal, caused by policy paralysis and the crisis of governance. Despite declining competitiveness, rigid labor markets and vulnerability to capital outflows, IMF estimates however point to at least a 40% increase in Nigerian GDP in 2013 to $400 bn. from $270 bn. in 2012. These figures will obviously jolt the economy. A larger economy means higher per capita GDP – $2,178, compared to $1,556 in 2012. It also means lower tax revenue relative to GDP. Regardless, there are budgetary consequences and economic implications. With an annual growth rate of 7% over the past decade, and a population of 170 million, Nigeria is set to become Africa’s biggest economy, by the end of next year.
But a disproportionate percentage of the nation’s budget is still consumed by the public sector whose productivity and contribution to growth is abysmal. As a practical matter, it is erroneous to think that paying people to be underemployed in the civil service serves any public good; the money and manpower trapped can be diverted to more productive sectors of the economy. It is also clear that spending almost 20% of the annual budget on subsidizing fuel, which is consumed in a few cities while only 4% is spent on roads needed to transport agricultural products to national and international markets, is not the way to end poverty. Of course, the big problem is the absolute lack of credibility of successive Nigerian governments and their inability to convince rightfully skeptical Nigerians on the need for civil service reforms and fuel subsidy liberalization. The extension of State failure in Nigeria’s oil sector which provides about 84% of government revenue further threatens Nigeria’s ability to invest in economic infrastructure and the delivery of vital social services required to meet poverty reduction targets. Ensnared by greed, Nigerian lawmakers are not at all embarrassed by the non-passage of the Petroleum Industry Bill – a critical legislation that undergirds the economy. This delay has crowded out over $100 billion in investment from the sector in the last five years.
It is not enough for lawmakers to set the benchmark price of oil for 2013 at US$79/barrel with oil production at 2.52 million barrel per day (mbpd). Also, adopting an exchange rate of N160 to the US dollar makes little economic sense; with the prevailing high interest rates, whereby banks charge 19% interest on bonds with the rate for the private sector being between 22% and 24%. In 2012, the Federal Government spent N699 billion to service the national debt with domestic debt accounting for about 95% of that total. On March 18, 2013, the Federation Account Allocation Committee (FAAC) released over N972 billion as February 2013 budget allocations. 72% of that amount (N703 billion) was freshly minted naira notes obtained from the CBN by the Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) in substitution for US$4.69 billion Federation Account (FA) accruals, withheld by the apex bank. Analytically, the injection of the N703 billion was tantamount to an unsolicited and inappropriate interest-free, non-repayable loan; an addition to the domestic debt that bloats the money supply volume with inflationary implications.
It is clear that this spiraling and burdensome domestic debt accumulated from excess liquidity with its high service cost, as well as the annual sinking fund, is completely avoidable. The debt burden from the faulty budget financing measures adopted by the Finance Ministry, RMAFC and CBN, are out of sync with international best practices for infusing foreign exchange into the economy following the end of fixed exchange rates. The Federal Government should cancel the fake domestic debt altogether for obvious reasons. Firstly, only about 20% of all public spending, comprising non-oil revenue is funded with realized revenue. Secondly, contrary to the claims by the Finance Ministry, Nigeria’s annual fiscal deficit as a ratio of GDP exceeds 15%. Thirdly, the economy is being buffeted by a cumulative national debt currently around 100% of GDP. These are the true indices of Nigeria’s abjectly weak economy that is persistently racked by macroeconomic instability, high inflation, high interest rates, sliding naira exchange rate, a comatose real sector, high unemployment and rising poverty.
Besides, there has long been a wide spread between the weighted average deposit rate (below 5%) and the average prime lending rate (15-25%) with maximum lending rate topping 30% for most small businesses. These rates have induced a high proportion of non-performing bank loans, overhanging banking sector distress, which has saddled AMCON with an expanding portfolio of toxic assets currently at about N6 trillion and a low ratio of bank credit to the economy as a proportion of GDP hovering around 30%. Practically, all banks will collapse without the fake domestic debt. This underscores the need to immediately replace the faulty fiscal and monetary practices.
Finally, for inflation to fall below 3% that would allow internationally competitive interest rates, the FAAC should begin allocating Federation Account dollar accruals through abuse-proof domiciliary dollar accounts for States to convert to realized oil-derived naira revenue through deposit money banks. In the process, there would be no unnecessary bloating of the money supply volume, which causes excess liquidity and inflation. That is the essential first step towards implementing and achieving a succession of balanced budgets, budget surpluses and/or budget deficits below 3% of GDP which guarantee the macroeconomic stability needed for productive transformation of the Nigerian economy.
