2018 budget: Counting on luck to stimulate growth

One thing that came clear in the 2018 budget proposal is the unquestionable resolve of the Federal Government to stimulate economic growth in the ensuing year. Consequently, it made the unprecedented allocation of 30.8 per cent of the N8.612 trillion 2018 budget proposal to capital projects.

The President had said at the budget presentation last Tuesday that, “This is in line with our commitment to appropriately fund ongoing capital projects to completion. By allocating 30.8 per cent of the 2018 Budget to capital expenditure, the Federal Government is also demonstrating its strong commitment to investing in critical infrastructure capable of spurring growth and creating jobs in the Nigerian economy.”

Economists are agreed that financing infrastructure is one of the surest ways to stimulate economic growth. It is believed that a dollar spent on infrastructure leads to an outcome greater than two dollars. Thus, with the plan to spend N9.8 billion on the Mambilla hydro power project, N12 billion as counterpart funding for earmarked transmission lines and substations, N35.41 billion for the National Housing Programme, N10 billion for the 2nd Niger Bridge, about N300 billion on the construction and rehabilitation of strategic roads and N17.32 billion on the East-West Road, the Federal Government is preparing the stage for intense economic activities that will positively impact the economy. The effect will be huge and far reaching as quite a number of companies will roar back to life and many employment opportunities will be created.

To finance the capital projects, the government is looking at generating N2.44trillion from oil, N4.165 trillion from non-oil and N2.005 trillion from borrowing.

Part of the assumptions that will produce the N2.44trillion oil revenue is a daily production of 2.3 million barrels of oil daily. The government has also put the crude oil benchmark at $45 per barrel.

The government hopes to achieve its non oil revenue of N4.165 trillion by generating Companies Income Tax of N794.7bn; Value Added Tax of N207.9bn; Customs and Excise receipts of N324.9bn; Federal Government of Nigeria independently-generated revenues of N847.9bn; amnesty income of N87.8bn; various recoveries of N512.4bn; N710bn as proceeds from the restructuring of government’s equity in Joint Ventures; and other sundry incomes of N678.4bn.

The impression created by the government’s funding strategy is that the FG is hinging its revenue generation and, by extension, its hope of stimulating economic growth through infrastructure financing on factors over which it does not have absolute control. The government is premising its projections on luck.

Realizing the oil revenue target is contingent on two factors; the first is that oil price has to remain high. Given the current situation in the Middle East, oil price is likely to continue to rally. But what happens if the de-certification of the Joint Comprehensive Plan of Action, more popularly known as the “Iranian nuclear accord”, by President Donald Trump is resolved or the hostilities between Iraq and Kurdistan over the status of the city and region of Kirkuk is resolved? Will oil price remain high? If those issues are resolved, it is highly unlikely that crude oil price will remain high. If oil price should slide, will the government be able to generate as much oil revenue as it projects? Even a continuously high crude oil price may not be good news for Nigeria as the Organization of Petroleum Exporting Countries (OPEC) may cap Nigeria’s output. If any of these scenarios plays out, it will impact negatively on the daily production of 2.3million barrels of crude oil and the attendant oil revenue.

The second factor is the situation in the Niger Delta. If hostilities should return to Niger Delta, the projections will be adversely affected. Members of the Niger Delta Avengers have been threatening to resume their attack of oil installations in the area because, according to them, the Federal Government has failed to live up to its promise. If they should go ahead with their threat, there will be serious disruption to the revenue target which will affect the resources available to finance infrastructure. In its response to the threat, the World Bank in its October edition of Commodity Markets Outlook, opined that political stress in the Niger Delta area of Nigeria could precipitate a disruption of global supply of crude oil.

The target of generating N4.165 trillion from non-oil sector is also not cast in concrete.

According to figures contained in the Medium Term Expenditure Framework prepared by the Ministry of Budget and National Planning and approved by the Federal Executive Council, total non-oil revenue, which included Corporate Income Tax, Value-Added Tax, Customs revenue, federation account levies and special account balances, fell short of target by 49 per cent in the first six months of 2017.

The document stated, “The projected revenue for the 2017 fiscal year was N5.08tn, based on the parameters adopted in the 2017-2019 MTEF. As of June 2017, N2.42tn of total revenue projected for the first half of the year was realised.

“Total non-oil revenues, which include Corporate Income Tax, Value-Added Tax, Customs Revenues, Federation Account Levies and Special Account balances, fell short of target by 49 per cent.”

That shows that the government may be too ambitious with its non-oil revenue projection if in the current year it could not manage to achieve 50 per cent success rate when the target was much lower than the one for 2018. Although the Ministry of Finance has expressed displeasure about the country’s poor tax revenue to Gross Domestic Product, and is working hard to change the tide, to expect such a giant leap in non-oil revenue is to set a target that may be intimidating to those saddled with the responsibility of generating it.

So, unless the permutations of the government work to the letter, the hope of having appreciable economic activities that will energise the economy and create the much needed employment opportunities be a mirage. If there should be peace in the Middle East or crisis in the Niger Delta, or a slide in revenue generation by Customs and FIRS or the government is unable to borrow the N2.005 trillion it is targeting to borrow, the government may not have the resources to expend on infrastructure financing and millions of employment-seeking Nigerians may have their hope of getting employed in 2018 dashed.

This is of grave concern because when there is paucity of funds the first casualty is usually capital projects.

Of the N2.174 trillion voted for capital projects in the outgoing year, only N450 billion has been released even when only about seven weeks are left in the current year. This is just about 20.70 per cent of the total sum. The government’s excuse has been shortage of funds. The effect of this is that many ongoing projects have been abandoned while those that were to start in the current year have yet to take off. Will there be a departure from the past in the current year?

So, as good as the plan to stimulate growth in the economy is, it may turn out to be another forlorn hope unless Mother Luck smiles on the country.