N8.8trn FG budget proposal and 120m poor Nigerians

A government budget is a statement of expected receipts and expenditure of the government during a fiscal year. Nigeria’s 2019 Federal Government budget proposal is an almost 2000-page list of expected bill payments related to operate most federal ministries, departments and agencies, including the military and national security. A budget is the mechanism by which the Federal Government plans and achieves mission requirements to the best of its ability.

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For 2019, the Federal Government has asked the National Assembly to approve N8.83 trillion made up of N2.144 trillion on debt service, N4.04 trillion on recurrent (non-debt), N120 billion sinking fund, N492 billion statutory transfers and N2.031 trillion capital.

President Muhammadu Buhari expects to finance these expenses through N3.730 trillion oil revenue; N1.390 trillion non-oil revenue; N1.225 trillion other revenues; and N1.859 trillion deficit.

Objectives of government budgets

Governments use budgets to redistribute income and wealth by imposing heavy taxation on a high income groups and redistributing it among the people of weaker section in the society. The government can provide subsidies, school feeding, conditional cash transfers, non-interest loans and other amenities to people whose income levels are low. These increase their disposable income and reduce inequalities.

Budgets are also used as a tool for reallocation of resources in the manner such that engenders balance between the goals of profit maximisation and social welfare by imposing higher rate of taxation on goods whose production is to be discouraged and subsidies provided on goods whose production is to be promoted. In recent times, government has imposed higher levies on alcoholic beverages and cigarettes. Also, Minister of Finance, Mrs Zainab Ahmed has also announced that higher levies will be imposed on luxury items such as yachts, champagne and private jets in 2019.

It is also part of the objective of government to use budgets as tool for economic growth to study the generation of savings, investment, consumption and capital formation to assess the trend of growth in the economy to improve the standard of living of the people.

Management of public enterprises

In the 2019 Appropriation Bill, the Federal Government rolled out a series of new financial management regulations for its revenue generation agencies. It threatened sanctions against such agencies that fail to remit mandatory surpluses at the end of the year, while asking them to render quarterly financial reports.

And finally, budgets are used as a tool for economic stability. Since it is committed to saving the economy from business cycles, government uses budget as a tool to prevent economy from inflation or deflation and to maintain economic stability. The overall level of employment and prices in the economy depends upon the level of aggregate demand during the time of deflation, deficit budgetary policy are used to maintain stability in economy.

Important numbers

According to Worldometer’s RTS algorithm, the population of Nigeria as at 3:18 pm on Tuesday, January 8, 2019 is 198, 527,581, the seventh largest population in the world at a growth rate of 2.6 per cent.

The number of people within the labour force who did not have a job and did nothing at all (unemployed) and those that were in some part time work (underemployed) rose respectively from 15.9 million and 18.0 million in Q3 2017, to 20.9 million and 18.2 million in Q3, 2018.

Total combined unemployment and underemployment rates increased from 40.0 per cent in Q3 2017 to 43.3 per cent in Q3, 2018.

During the quarter Q3 2018, 26.6 per cent of women within the labour force (aged 16-64 and willing, able, and actively seeking work) were unemployed, compared with 20.3 per cent of men within the same period.

For the period under review, Q3, 2018, the unemployment rate for young people (15 – 35 years) declined to 29.7 per cent in Q3, 2018 from 30.50 per cent in Q2 2018. This was however an increase from 13.7 per cent in Q3 2015, 19.1 per cent in Q3 2016 and 25.5 per cent in Q3 2017.

As of Q3 2018, 55.4 per cent of young people (15-34) were either underemployed or unemployed (doing nothing) compared to 52.6 per cent in the same period of the previous year.

According to National Bureau of Statistics (NBS) “economically active or working age population (15 – 64 years of age) increased from 111.1 million in Q3,2017 to 115.5 million in Q3, 2018.  This represents a 1.0 per cent growth over the previous quarter (1.18 million persons) and a 3.9 per cent growth over the same period in 2017 (4.35 million persons).  This growth in the economically able population reflects the high population growth rate especially the youth population.

“The labor force population, which is all persons in the economically active population that are willing and able to work, followed a similar growth trend, increasing from 85.1 million in Q3 2017 to 90.47 million in Q3, 2018.  However, the labour force grew at a faster rate than the working age population, recording a growth of 1.1% from Q2 2018 to Q3 2018 (961,000 persons), and a growth of 6.3 per cent over Q3 2017 (5.38 million persons).

“In absolute terms, 1,182,000 people joined the working age population (the age they are now allowed to work) in Q3 2018, out of which 961,391 people joined the labour force (those who are now eligible for work that have now started looking for work) between the second and third quarter of this year. The faster growth rate in the labour force over the working age population indicates that more persons previously outside the labour force (unwilling/unable/not actively seeking to work), decided to join the labour force (i.e. to actively seek work) in Q3 2018.”

Poverty

With ballooning unemployment and underemployment, the rate of poverty has also continued to increase geometrically

The outlook for poverty alleviation is weak. The World Poverty Clock notes that at least 87 million Nigerians were living in absolute poverty or destitution by the end of June 2018. The clock noted that extreme poverty in is increasing by six people every minute and that “if current trend persist, we expect this poverty escape rate to improve modestly over the next decade to approximately three people every minute. Nevertheless, the overall effect will be muted: by 2030, we estimate the percentage of Nigeria’s population living in extreme poverty will increase from 44.2 percent to 45.5 per cent, representing a total of some 120 million people living under $1.90 per day.

But even beyond the domain of poverty alleviation, Nigeria’s changing demographics – and the associated implications for employment and public finances – will increasingly require attention from policymakers.

However, when compared with data from National Bureau of Statistics (NBS) however, the Poverty Clock may be rather understated. In its latest poverty report released on February 13, 2012, NBS said 61 percent of Nigeria’s 160 million people were poor and predicted that the trend was likely to continue.

Budget realities

According to African Development Bank (AfDB), Nigeria’s infrastructure deficit stood at $3 trillion by 2018.

Some of the deficit include poor road network as Nigeria presently has one of the worst road networks in Africa. Aside the Abuja-Kaduna standard gauge railway, there are no functional railway services in the country presently. And although electricity distribution has increased to about 4,200 megawatts per day in recent weeks, Nigerians still rely more on alternative energy than on supply from national grid.

UNICEF recently disclosed that at least 13 million children who are supposed to be in schools are out on the streets while adding that 6.1 million Nigerians are in need of urgent humanitarian assistance. The organisation also revealed the outcome of 2019 National Outcome Routine Mapping (NORM) Report that 47 million Nigerians defecate in the open while the country loses N455 billion annually due to poor sanitation.

And so, budgets of local, states and Federal Government should be used to stimulate provision of infrastructure as a stimulant for economic growth.

But when the 2019 Appropriation Bill is deconstructed, it is clear that only 1,866,850 civil servants will consume N4.04 trillion of the N8.8 trillion. Of the remaining, N2.144 trillion would be devoted to debt service. While sensible debts are fine, economists believe that debts wasted on frivolities or expended on inflated contracts are of little benefit to the generality of the people. Realistic costing of many of the projects for which debts were incurred in Nigeria showed that less than 25 per cent of debts actually were used to fund the projects.

The 2019 proposed budget increased debt service by 2.73 per cent compared to 2018 budget. Nigeria will have to borrow more in order to finance the 2019 budget deficit of N1.86 trillion which will automatically increase the overall public debt stock. The 2019 budget deficit which the government planned to finance by borrowing the total sum of N1.649 trillion will further add to the total debt stock of the country and increase provisions for debt service repayment and servicing in subsequent fiscal years. Projected debt service is 26 per cent of the overall 2019 vote and 32 per cent of the projected oil and non-oil revenue.

In essence, the 2019 federal budget will as usual, take care of public servants while the overwhelming majority of Nigerians will continue to wallop in penury.

It is pertinent to state that Nigeria hardly meets up with her revenue projection for each year as previous years’ records have always shown a big shortfall in the realisation of projected revenue. Now when there is a shortfall in revenue, salaries and overheads will be paid, debt will be serviced and paid while capital project implementation will always suffer as the case has been.

In the budget, President Muhammadu Buhari alone will spend N1,001,318,171 on local and international travels. The budget proposes N250,021,595 for the president’s local trips and N751,296,576 for him to travel internationally.

For Vice President Yemi Osinbajo, N83,974,710 was budgeted for local travel, while N217,060,883 was proposed for his international trips.

Under foodstuff/catering materials supplies, N98,306,492 was budgeted for the President and N50,888,218 for the vice president.

In addition, both Buhari and Osinbajo are to spend over N7.5 billion in 2019 on “operations” and maintenance of office buildings while State House generally has a proposed allocation of N49.3 billion for general services, covering capital, recurrent and overhead costs. Another N10 billion will go to the President’s Office as running cost.

In spite of the N4.7 billion presidential residential buildings will be rehabilitated with another N161.2 million. Similarly, a provision of N65.4 million was made for the animals in the State House for their “conservation.”

Job creation

It is also instructive that despite the Buy Nigeria campaign of the Federal Government, most of the vehicles budgeted for purchase in the 2019 proposal will be wholly imported from abroad. A number of vehicle assembly plants are operational across the country.

However, in 2019 most of the vehicles to be imported are Toyota brands. In essence, opportunities for foam manufacturers, tyre manufacturers, windscreen, windshield and other plastic components will all lose out from benefiting. Nigeria will continue to create jobs abroad while millions are in the employment market at home.