The Federal Government has proposed a budget of N7.29tn for the 2017 fiscal year, with the primary goal of pulling the country’s economy out of recession and placing it on the path of growth.
President Muhammadu Buhari presented the estimates to a joint session of the National Assembly in Abuja on Wednesday in a speech lasting roughly 51 minutes.
Tagged: ‘Budget of economic recovery and growth’, it is 20 per cent higher than the N6.06tn budgeted for 2016.
Its total capital component of N2.24tn is higher than that of 2016 by 30.7 per cent, a projection Buhari said was made to spend more on infrastructure, solid minerals development, agriculture and provide support for local manufacturing firms to speed up growth.
Spending on recurrent expenditure is put at N2.98tn.
Although, the anticipated revenue of N4.9tn for 2017 is higher by 28 per cent than that of the current year, it has a deficit of N2.36tn, representing 2.18 per cent of the Gross Domestic Product.
The President told lawmakers that the deficit would be financed through a projected borrowing of N2.32tn, broken into N1.06tn from external sources and N1.25tn from domestic creditors. However, the debts will be serviced with N1.66tn.
A breakdown of the N4.9tn revenue shows that N1.98tn will come from crude oil sales, while the non-oil sector is expected to generate N1.33tn.
The government projected N807bn to come from independent revenues; recoveries, N565bn; and other sources, N210.9bn.
Like it did in 2016, the government retained 2.2 million barrels as the daily oil production output in spite of the bombing of oil installations in the Niger Delta by militants.
Buhari said he expected that ongoing negotiations between the government and the militants would reduce militancy in the region and improve oil production next year.
The government also laid another bait for the militants by increasing the funding of the Presidential Amnesty Programme to N65bn in 2017.
The crude oil benchmark price was raised to $42.5 per barrel from the $38 that was budgeted in 2016, while the exchange rate was set at N305 to $1.
Buhari said, “Based on these assumptions, the aggregate revenue available to fund the federal budget is N4.94tn. This is 28 per cent higher than the 2016 full-year projections. Oil is projected to contribute N1.985tn of this amount.
“Non-oil revenues, largely comprising Companies’ Income Tax, Value Added Tax, Customs and Excise Duties and Federation Account levies are estimated to contribute N1.373tn. We have set a more realistic projection of N807.57bn for independent revenues, while we have projected receipts of N565.1bn from various recoveries. Other revenue sources, including mining, amount to N210.9bn.
“With regard to expenditure, we have proposed a budget size of N7.298tn, which is a nominal 20.4 per cent increase over the 2016 estimates; 30.7 per cent of this expenditure will be capital in line with our determination to reflate and pull the economy out of recession as quickly as possible.”
As part of the government’s plan to expand infrastructure, the Ministry of Power, Works and Housing has a capital allocation of N529bn, while Transportation is to be given N262bn.
The Ministry of Defence has a combined total capital and recurrent vote of N465bn; Interior, N545bn; Education (excluding basic education), N448bn; Health, N303bn; and Judiciary, N100bn (up from N70bn in 2016).
The President acknowledged that Nigerians were indeed facing hardship due to the downturn in the economy.
He, however, stated that the hardship presented an opportunity for the country to rise to greatness and challenge the creativity and the ability of the citizenry to re-grow the economy.
The President said, “We continue to face the most challenging economic situation in the history of our nation. Nearly every home and nearly every business in Nigeria is affected one way or the other. Yet, I remain convinced that this is also a time of great opportunity. We have reached a stage when the creativity, talent and resilience of the Nigerian people are being rewarded.
“Those courageous and patriotic men and women who believed in Nigeria are now seeing the benefits gradually come to fruition.”
As part of measures for recovery, the President said Nigerians must consume locally-produced goods and patronise ‘made in Nigeria’ services to re-tool the economy.
Buhari, “By this simple principle, we will increasingly grow and process our own food, we will manufacture what we can and refine our own petroleum products. We will buy ‘Made in Nigeria’ goods. We will encourage garment manufacturing and Nigerian designers, tailors and fashion retailers. We will patronise local entrepreneurs.
“We will promote the manufacturing powerhouses in Aba, Calabar, Kaduna, Kano, Lagos, Nnewi, Onitsha and Ota. From light manufacturing to cement production and petrochemicals, our objective is to make Nigeria a new manufacturing hub.”
Buhari also said his economy recovery agenda would include a reform of oil and gas production in such a way that the country would minimise waste.
He disclosed that one major policy coming into effect from January would be to stop direct funding of Joint Venture operations.
He noted, “In addition, we will continue our ongoing reforms to enhance the efficiency of the management of our oil and gas resources.
“To this effect, from January 2017, the Federal Government will no longer make provision for Joint Venture cash calls. Going forward, all Joint Venture operations shall be subjected to a new funding mechanism, which will allow for cost recovery.
“This new funding arrangement is expected to boost exploration and production activities, with the resultant net positive impact on government revenues, which can be allocated to infrastructure, agriculture, solid minerals and manufacturing sectors.”
Experts fault assumptions
Economic and financial analysts on Wednesday expressed doubt over whether the N7.298tn proposed budget for 2017 would be able to take the country out of the recession as intended by the Federal Government.
They said unless certain adjustments were made in terms of the budget assumptions, especially the total expenditure, exchange rate and oil output, it might not ameliorate the suffering of Nigerians.
The Director-General, West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, said although the oil benchmark assumption was good, the exchange rate and total expenditure were too low, while the oil production output figure was too ambitious.
“The oil benchmark is conservative and good. My problem is with the exchange rate, oil output and the total expenditure put at N7.298tn; they are not realistic considering the situation in the economy,” he said.
The Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said, “The direction of the budget is okay but the quantum is small. We need to increase the spending considering the fact that the exchange rate has crashed by over 50 per cent. Also, the oil production output is too aggressive.”
A Professor of Economics at the Olabisi Onabanjo University, Ago Iwoye, Sheriffdeen Tella, equally said the oil benchmark was okay but faulted the exchange rate, oil production and total expenditure figures.
The Managing Director of Cowry Asset Management Limited, Mr. Johnson Chukwu, was also of the opinion that the oil output figure was not okay.
“Spending over N5tn on recurrent expenditure and debt servicing does not show that we are beginning to be prudent. It shows that the entire N2.24tn capital expenditure is coming from borrowing.”
“Also, the N1.2tn local borrowing plan is capable of crowding out private sector borrowers who are crucial to our economic recovery,” he stated.
The Registrar, Chartered Institute of Finance and Control of Nigeria, Mr. Godwin Eohoi, was of the view that the budget would not get the country out of economic recession owing to the lack of coordination of fiscal and monetary policies
However, the Executive Director, Corporate Finance, BGL Capital Limited, Mr. Femi Ademola, said that if effectively implemented, the fiscal spending could put the country on the path of sustainable development.
Eohoi said, “The budget presented today (Wednesday) cannot get us out of recession because some of the issues that gave rise to the recession may not be fully addressed with the budget. Many of the issues that caused the recession have to do with government policies, which have not been too consistent.
“There is no way we can get out of recession if some of the fundamental issues affecting key sectors of the economy are not addressed. Look at the policies of the CBN; in one year, we had over three or four policies on foreign exchange, and this has affected a lot of the sectors.”
Ademola faulted the huge amount budgeted for debt servicing, adding that this might affect the impact that the budget would have on the people.
He, however, said that with huge spending by the government coupled with the fact that the country was in dire need of spending stimulus, the country might start experiencing recovery.
He said, “We have about N1.6tn as debt repayment out of the N7.3tn, and this is very high. Why should we be using about 25 per cent of the budget to repay debt that we have spent? The interest rate is too high.
“There is nothing bad in borrowing but we should borrow heavily for infrastructure purpose; and if we can do that in 2017, then we can get out of recession.”
A Professor of Financial Economics at the University of Uyo, Leo Ukpong, said although the budget was a right step in the fight against recession, it might not completely take Nigeria out of the situation in the coming year.
He said, “I’ve not seen the details yet, but the N7.29tn budget is a little bit higher than what we got in 2016. The channels they want to use it to stimulate the economy are of importance now. So if they take over N500bn to power and housing, which are mainly capital projects that’s okay, however, they are capital projects that take time before they permeate the system.
“In other words, to build a whole power system from generation to transmission and then distribution will take probably a year or two before it trickles into the economy considerably. Housing, on the other hand, is always a quick way to stimulate the economy, but this depends on whether the budget will be approved on time.”
Lawmakers on proposed budget
The President of the Senate, Bukola Saraki, commended the improved mutual respect between the National Assembly and the Executive, particularly the cooperation the two sides displayed in the planning of the 2017 budget proposal.
He stated that the cooperation was seen in the joint resolution passed by the National Assembly urging the President to address the lawmakers on his recovery plans for the economy.
“We must work with a common purpose to get the economy back on track whatever may be our differences,” Saraki added.
However, he did not forget to stress that much as lawmakers saw the budget as one of the best proposals in recent history, “it remains a proposal until it becomes a law in the manner passed by the National Assembly.”
On his part, the Speaker of the House of Representatives, Yakubu Dogara, sought the extension of the implementation period of the 2016 budget to May 2017 in order to cover more grounds.
Dogara added, “As I counselled last year, an Appropriation Act must be allowed to run for an uninterrupted period of 12 months for the Executive to have enough time to execute it.
“This means that both Mr. President and the National Assembly must find a way to continue the execution of the 2016 budget, especially the capital component, till May 6, 2017, which is 12 months from the date that Mr. President signed the 2016 Appropriation Bill.
“This is also the clear intendment of the definition of a financial year in Section 318 of the (1999) Constitution. The problem is that most often, the recurrent component of the budget is implemented to an appreciable level, but the capital component’s execution is very low.”
He added, “It is crystal clear that the capital component of the 2016 budget cannot realistically be implemented for only a six-month period considering the time required for procurement processes and the raising of the revenue, including loans by the government.
“Except something is done, this will result in yet another failed budget, a vicious cycle repeated every year.”
The Chairman, House Committee on Basic Education, Mr. Zakari Mohammed, noted that so long as there was the lack of will to implement budgets, the presentation would remain annual rituals.
He explained, “Like the Senate President said, there is hunger in the land; that position was re-echoed by Mr. Speaker. Mr. President said it is a budget of hope and a budget of trying to get things done in a recession.
“But, I want to give him the benefit of the doubt because there has not been anything wrong with budget presentation, but the problem is the implementation. For me, I just think that it is an annual ritual, but I will reserve my comments until we see full implementation.”
Another member of the House, Linda Ikpeazu, said the budget was a “paper work,” which would be re-worked by the National Assembly to meet the needs of the people.
She also expressed surprise that other parts of the country had railway projects built into the budget except for the South-East.
On his part, Mr. Johnson Agbonayinma, said the first consideration was to give the budget a chance by treating it in a manner devoid of politics.