2016 budget: How far so far?

After months of bickering, President Muhammadu Buhari finally signed the 2016 budget into law in the first week of May. One week after, precisely on May 12, the Minister of Budget and National Planning, Senator Udoma Udo Udoma, at a media briefing announced that Ministry of Finance would on the following day release N350 billion, being the first of the four tranches through which the N1.75 trillion capital vote for the year would be released and implemented.

Major outlay of the expenditure provisions of the N6.06 trillion budget, which represents an increase of 35 per cent over the 2015 provision of N5.067 trillion include Statutory Transfer (inclusive of N157 billion capital component- N351.37 billion; Debt Service including sinking fund provision- N1.48 trillion; Recurrent (non-debt) Expenditure- N2.65 trillion; Capital Expenditure (excluding share of Capital in Statutory Transfers)- N1.59 trillion and; Capital Expenditure (including share of capital expenditure in Statutory Transfer)- N1.75 trillion.

The 2016 budget would rely on non-oil revenue for funding. “The 2016 budget envisages a net distributable revenue of N5.72 trillion comprising main federation account revenue of N4.303 trillion and N1.416 trillion from the Value Added Tax (VAT) pool account.” Of this distributable revenue, Udoma said “net oil receipts amount to N1.48 trillion or 25 per cent while net non-oil receipts accounts for the balance of N4.22 trillion or 75 per cent.” Of this, federal government budgeted revenue is projected at N3.855 trillion largely contributed by its internally generated revenue (IGR) of N1.51 trillion which is 35 per cent increase over the N2.855 trillion for 2015.”

Growth in the Federal Government revenue would be mainly derived from the growth in non-oil resources namely: Corporate Tax; VAT and dividend from government corporations and independent revenue. Projected Corporate Tax will fetch N1.88 trillion in 2016 from N1.42 in 2015 and VAT collection will fetch N1.48 trillion during the fiscal year as against N1.28 trillion the previous year.

“Some of the key allocations for 2016 will be Power, Works and Housing-N456.93 billion;Transportation-N202.34 billion;Defence-N443.07 billion;Interior-N513.65billion;Education-N403.16billion; Health-N250 billion; Agriculture-N75.8billion;Solid Minerals-N16.73 billion and the much expected Special Intervention Programmes-N500 billion.

“Other policy actions to be taken in the fiscal year also include: Implement measures to achieve self-sufficiency and become net exporter of certain agricultural items: rice -2018, tomato paste-2016, wheat-2019. Increase local production of maize, soya poultry and livestock, so as to achieve self-sufficiency: deadline to be announced in due course. Revitalize and expand Argo-Allied processing to intensify local production and processing of cassava, cocoa, cashew, fruits and sesame seed. Utilise 5,000 hectares of irritable land in the 12 River basin development authorities and utilise 22 dams for commercial farming activities by prospective investors. Concession the Dadinkowa, Gurara (phase I) and Oyan dams with capacity to contribute a total of 82.5MW to the National Grid.

“Government will also adopt and implement a road map to stimulate investment into the solid minerals sector and plug revenue leakages in the sector; implement the national industrial revolution plan and launch made in Nigeria campaign. Increase Manufacturing capacity by operationalizing industrial parks, free and export processing zones etc; enhance support facilities to provide increased financial technical assistance, networking and information to new investors and existing enterprises.

“There will also be an optimisation of the 7,000MW installed power capacity and ensure associated infrastructure to fuel, transmit and distribute this capacity is operational and effective. Complete the privatisation of NIPP plants and improve the management and performance of TCN; Ensure tariff includes all costs of transmission, generation and gas at the new price as well as Discos costs required to operate, maintain and upgrade distribution networks; Resolve all issues on gas pricing, tariff and payment assurance, conclude roadmap on gas development; Complete the Kaduna-Abuja and Ajaokuta-Warri rail lines scheduled for 2016; revise the National Rail Master plan, commence construction of the Lagos-Kano standard gauge rail line and finalise negotiations for the Calabar-Lagos rail project,” Udoma stated.

Historically, implementation of recurrent aspect of annual budgets in Nigeria has always been smooth. Workers earn their salaries, go on training, travel, buy stationeries and never fail to either provide entertainment or entertain themselves,” the government said.

The problematic aspect, however, was capital. The expansionary budget reportedly directed at reflating the economy was projected at a deficit of N2.2 trillion, which is about 2.14 per cent of GDP but well within the three percent threshold stipulated by the Fiscal Responsibility Act, 2007.

Government planned to source N1.8 trillion of the projected deficits mainly by borrowings from both domestic and foreign market so as not to crowd out the private sector.

Udoma said “furthermore, we are optimistic that we may be able to access some of the foreign loans on a concessionary basis. The Ministry of Finance is currently negotiating with multiple sources to secure the external financing,” Udoma stated.

Key assumptions of the budget include oil production of 2.2 million barrels; benchmark oil price of $38 per barrel; average exchange rate of N197/$

 

Revenue projections

For the budget, a net distributable revenue of N5.72 trillion was expected while the main Federation Account revenue was to be about N4.303 trillion. Government expected N1.416 trillion in value added tax. Others were net oil receipts, N1.48 trillion; net non-oil revenue account, N4.22 trillion; states & LG share of distributable revenue, N3.24 trillion; FG share of net distributable revenue- N2.48 trillion and FG projected revenue of N3.855 trillion

 

Reality

Unfolding events have, however, exposed most of the baseline assumptions as unrealisable. While the crude oil benchmark of $38/barrel was met, activities of vandals, especially in the Niger Delta, ensured that the country did not enjoy the benefit of improved prices. Instead of the daily crude production projection of 2.2 million barrels per day, oil companies were not able to produce more than one million barrels or less most month of the year.

Speaking with Sunday Tribune on the preparations for the 2017 budget, the chairman of the House of Representatives Committee on Legislative Budget, Timothy Golu, criticised the approach deployed by the executive to usually arrive at budget fundamentals. On the proposed N6.9 trillion budget estimates for 2017, he declared that the figure was not realistic considering current realities.

“What are the sources of financing? We have a committee on Legislative Budget and Research, which does the analysis and then hands it over to the committee on Finance. The Committee on Finance sits and analyses the projections, whether it is realistic to obtain half of that money from the sale of 2.2 million barrels of crude a day at $38/barrel. And the 2.2 million barrels per day projection has been halved due to activities of militants. And wishes are not horses otherwise, we would have wished for 5 million barrels’ production per day.

“As it is now, the crises in the Niger Delta will not allow that. Why are they pretending not to know that there is crisis in the region, which is affecting production? That it will just vamoose like that? Throughout the tenure of late President Yar’Adua and President Jonathan and even since President Obasanjo’s time, the crisis has been there. Is that what you are wishing away in one year? The budget is for a period of 12 months and so what magic will you use to settle the crisis, especially when the economy has not been diversified?,” Golu queried.

 

Funding deficits

Director of Policy at the CBN, Mr. Moses Tule, recently told members of the Chartered Institute of Bankers of Nigeria (CIBN) that the Federal Government was finding it increasingly difficult to borrow from the domestic market. “They came back with only 25 per cent of what they wanted to borrow. From the market, the lenders said we haven’t seen your fiscal policy; we haven’t seen the direction. We will not lend. We will not buy your instrument. If you are offering to us at 20 per cent, we will not accept.” According to him, lenders are now forcing government to borrow at 22 per cent meaning that of every N100 borrowed, government takes home N78.00 while the lenders take N22.00.

As a result, it has not been easy to fund the N1.8 trillion deficits inherent in the budget.

For the estimated N900 billion, which is to be borrowed internationally, not much progress has been made either. DMO and Ministry of Finance only last week picked transaction advisers for the $1 billion Eurobond part of the loans. Also, of the $1 billion request made to African Development Bank (ADB), the bank only approved $600 million and when its President, Dr. Akinwumi Adesina, spoke at a summit in Abuja last Monday, it was clear that the papers were still being processed.

In essence, government has not been able to procure any part of the N900 billion foreign half of the facilities to partly finance the 2016 budget. It must be stated nonetheless, that the National Assembly extended the lifespan of the 2016 budget to June 2017 as a result of the delay in approving it.

 

Early doubts

Shortly after the budget was signed into law by Buhari, Udoma had told State House Correspondents that it was practically impossible to fully implement the budget. “Our aim is 100 per cent implementation because the budget is a law that must be implemented. But the reality is that we may not achieve this, because we are starting late,” the minister said.

However, by the end of October, Adeosun disclosed that of the N6.06 trillion total budgets, N2.5 trillion had already been released, representing 35 per cent implementation. Giving the breakdown, she said the releases so far to include N753 billion for capital votes; N117 billion for statutory transfers; N135 billion for service wide votes; N108 billion for overheads, while consolidated pensions stood at N142 billion and personnel costs totaled N1.2 trillion.