2017 APPROPRIATION BILL: THE BUDGET OF ECONOMIC GROWTH AND RECOVERY?

2017 APPROPRIATION BILL: THE BUDGET OF ECONOMIC GROWTH AND RECOVERY?

On Tuesday, Television Continental (TVC) reported that the Nigerian Senate would start the review of the 2017 Appropriation Bill which has been tagged; ‘The Budget of Economic Growth and Recovery’ by the executive. However, an extensive analysis of the budget figures and allocations would only reveal one thing – the government is not serious about reversing the current recession that has stalled economic growth and development.

The projected budget which was prepared by the Ministry of Budget and National Planning headed by the Minister Udoma Udo Udoma would be the highest budget in the history of our dear country in terms of projected expenditure at NGN7.3 Trillion which is a 20.4% increase in the 2016 budget -The Budget of Change at NGN6.1 Trillion.

In consequence, this article would examine the critical allocations and projections of the 2017 appropriation bill and discuss in layman terms how these figures would affect every one of us – me and you. However, I would encourage my readers to study the bill passionately so that it would make my discussion and total evaluation of the bill understandable. You can study the budget projections and allocations in the Ministry of Budget and National Planning’s official website - //www.budgetoffice.gov.ng/

Perhaps, it is worthy of note that the strategies employed by the Federal Government to reverse the destiny of the country from the economic recession are commendable; they have been highlighted in subsequent paragraphs.

v Recognize inherited debt profile through a robust audit process   

v Mobilize private capital to complement Government spending on infrastructure 

v Strengthen fiscal/monetary handshake    

v Incentivize exports

v Encourage investment in specific sectors through fiscal incentives

v Revenue enhancement and cost consolidation of the fiscal space

v Improve fiscal discipline at Sub-National level

v Enable and accelerate Recoveries process

v Rebalance debt portfolio to extend maturity and optimize debt service cost

v Improve capacity and access to finance for MSME

An Analysis of the Budget Allocations and Projections

ª     Capital Expenditure – 30.7% of the total expenditure in the 2017 Appropriation bill which is about NGN2.2 Trillion has been earmarked for Capital Expenditure. However, will this be achieved? This is predicated on the fact that the implementation of capital expenditure in 2016 achieved barely an average performance. Will capital projects suffer again in 2017 while personnel & overhead costs take pre-eminence?

I also believe that a mere 30.7% of the total expenditure is too small to record any significant achievement, this is because there is a whopping $350 billion infrastructure deficit with 14% debt to GDP ratio (with external portion less than 2%), compared to its peer economies, such as South Africa, with such low infrastructure deficits and world-class infrastructure, and a debt to GDP ratio as high as 44%, with external debt component of about 39.38%.

ª     Debt Servicing & Deficit Borrowing – It is catastrophic to discover that a whopping NGN1.66 Billion which is 22.5% of the total projected expenditure would be used to service debt. This only validates the fact that there has been a lot fiscal recklessly and it is also heartbreaking to note that the budget deficit will be financed mainly by borrowing which is projected to be about NGN2.32 trillion. While presenting the 2017 Appropriation Bill to the joint session of the National Assembly on the 14^th of December, 2016 the President noted that; ‘Our intention is to source N1.067 trillion or about 46% of this borrowing from external sources while, N1.254 trillion will be borrowed from the domestic market’. He concluded. I totally disagree with this initiative, this is because the country would be at the mercy of creditors and it would surely create problems for future generations. I would like to remind the President that the main reason we got to this point was because the country failed to save at the time of plenty (which he also noted in the speech) so borrowing such huge amount at this critical time when we should be modest is like doing the same thing, the same way and expecting a different result.

ª     Non-Debt Recurrent Expenditure – The highest single allocation in the 2017 appropriation bill was budgeted for Non-debt expenditures at 39%. The need for innovation in governance cannot be over-emphasized. The Federal, state and local governments as well as other arms of government in these three levels need to significantly cut cost. The constant verification and elimination of ghost workers in all the levels of government is commendable but it should not stop there. The purge in the number of political office holders and their remunerations is highly important because the economy is at a sinking point, we are witnessing the worst economic recession in the history of our great nation. It is simple common sense that there can never be any significant improvement when recurrent expenditure exceeds capital expenditure.

2017 Appropriation Bill and the Nigerian Economic Recession

Most mainstream economists believe that recessions are caused by inadequate aggregate demand in the economy, and favor the use of expansionary macroeconomic policy during recessions. Strategies favored for moving an economy out of a recession vary depending on which economic school the policymakers follow. Monetarists would favor the use of expansionary monetary policy, while Keynesian economists may advocate increased government spending to spark economic growth. Supply-side economists may suggest tax cuts to promote business capital investment. When interest rates reach the boundary of an interest rate of 0% (zero interest-rate policy) conventional monetary policy can no longer be used and government must use other measures to stimulate recovery. Keynesians argue that fiscal policy—tax cuts or increased government spending—works when monetary policy fails. Spending is more effective because of its larger multiplier but tax cuts take effect faster. (Culled from Wikipedia.com – Recession)

The information above explains in clear terms the reason why the Federal government is proposing an expansionary budget for the present fiscal year but a close examination of the figures would reveal that the 2017 appropriation bill is smaller than the 2016 budget. According to the budget estimates, with an exchange rate of NGN305 to a dollar and over 18% inflation average, against NGN197 per dollar in 2016 and 16% inflation average, the 2017 budget is actually smaller.

At the proposed exchange rate of NGN305 to a dollar, N2.24 trillion provision for capital projects would translate to about USD7.344 billion only, against about NGN1.8 trillion capital spending in 2016, which came to about USD9.137 billion at 197 per dollar exchange rate. (Odilim Enwegbara - The Chief Executive of Pan-Africa Development Corporation - Dec. 27, 2016)

In my candid opinion, I do not believe that the 2017 appropriation bill is enough to get the country out of the present economic recession but I hope and pray that I am wrong.

God Bless Nigeria

Olusanya, Oluwole Sheriff