The 2019 Budget And The Buhari Fallacies
The Oasis Reporters
December 22, 2018
By Dr. Umar Garba Pella
Amidst a mixture of booing and cheering at the National Assembly, President Buhari managed to present the 2019 budget proposal to the Nation. The session was truly the biggest national embarrassment we have witnessed in recent times. Being careful not to be drawn into the politics of the executive-legislative feud which has characterised our polity under Buhari (needless feud that was allowed to fester due to poor management), I want to concentrate on the budget as presented and expose the false claims it is loaded with.
Highlights of the 2019 budget
a. Total expenditure is N8.83 trillion, of which N4.04 trillion is recurrent, N2.14 trillion will be devoted to debt service and N2.31 trillion will be spent on capital projects.
b. Projected revenue is N6.97 trillion of which N3.73 trillion will come from the oil sector and N1.39 trillion from the non-oil sector.
c. Projected revenue falls short of projected expenditure by N1.86 trillion. The Federal Government will again resort to deficit financing to close the gap between revenue and expenditure.
d. The federal government made very generous assumptions about daily projection of crude oil (2.3 million barrels per day), GDP growth rate (3.01%) and inflation rate of less than 10%.
Review of the 2019 Budget
The 2019 Budget Proposal made several claims which are not entirely true as shown below:
Claim No. 1:
The economy has recovered from recession and we have had six quarters of growth since then. (PMB)
In reality, the economy is yet to recover from the 2016/2017 recession as it remains extremely fragile and vulnerable to external shocks. GDP growth declined from 2.11% in 2017 to 1.9% in Q1 and to 1.5% in Q2 of 2018. In Q3 of 2018 there was a marginal increase by 0.3% to 1.8%.
The local economy is still severely stressed and, in its current form, is not dynamic enough to journey to the so-called NEXTLEVEL. For the year 2019, a general slowdown in the real growth rates of economic activity in both the oil and non-oil sectors has been projected at 1.9% by the World Bank. This rate is well below the 2019 budget projection of 3.01% and is not enough to create the needed jobs for the growing population of the country or for the attainment of the SDGs.
As a sign of the weakness of the economy, the rate of unemployment has increased from 18.8% in 2017 to 23.1% in Q3 of 2018. Today, close to 20 million people are unemployed compared to 7.2 million people in 2014.
Claim No. 2:
We also recorded several successes in economic management. Real Gross Domestic Product growth stood at 1.81 percent in the third quarter of 2018 compared to 1.17 percent in the third quarter of 2017. (PMB)
This has been responded to above. Real Growth Domestic Product DECLINED from 2.11% in 2017 to 1.9% in Q1 2018 and to 1.5% in Q2 2018. The increase in GDP growth in Q3 of 2018 relative to Q2 2018 is very marginal at ONLY 0.3%.
In reality, the economy is STILL SEVERELY STRESSED and without coherent plans, it should not be expected to grow out of the recession.
Claim No. 3:
We have had a sustained accretion to foreign exchange reserves from a low of $28.57 billion in May 2015 to $42.92 billion by mid-December 2018. (PMB)
Yes, we have seen some increases in gross reserves. However, the so-called ‘successes’ recorded did not emanate from any coherent and comprehensive economic policies of the Federal Government. The ‘sustained accretion’ to foreign exchange reserves resulted from increases in international prices of Brent Crude and foreign borrowing. Given our total dependence on the oil sector for foreign exchange earnings, any turbulence in the international oil market will lead to reversals.
This cannot be counted as ‘success’. The acclaimed ‘success’ was simply by the Grace of God!
Claim No. 4:
Foreign capital inflows including direct and portfolio investments also responded to improved economic management.
Sadly, Foreign Direct Investment (FDI) is limited and is declining. In Q3, 2018 capital inflows were US$2,855.21 showing a decrease of 48.21% compared to Q2 2018 and 31.12% decrease compared to Q3 2017. Indeed, its current level is the lowest since Q2, 2017. Value of Foreign Portfolio recorded at US$1.7billion represents a decrease of 58.2% compared to Q2 2018. It also represents a 37.7% decrease compared to the Q3 of 2017.
Finally, it is very significant to note that capital importation in 2014 (Q3) was US$6.5 billion and in 2018 (Q3) US$2.9 billion. This shows US$3.6 or 55% decline since the regime came into power.
So capital importation shrinks!
Claim No. 5:
With regard to the oil and gas sector, crude oil production continues to increase steadily towards budgetary targets (PMB)
In reality oil production averaged 1.95 million barrels per day against projected 2.3 million barrels per day.
Claim No. 7:
In agriculture, we are seeing increased investment across the entire value chain from agricultural inputs to farming and ultimately, food processing. (PMB)
Agricultural growth is well below historical levels. The growth in agricultural production declined from 3.48% in Q3 2015 to 1.91% in Q3 2018. Similarly, in 2018, growth has been declining from 3% in Q1, to 1.19% in Q2 and 1.91% in Q3. There is little evidence to show that ‘increased investment’ in agriculture has yielded positive results.
Claim No. 8:
The fact that over the past three years, Nigeria has gained 24 places in the World Bank Ease of Doing Business rankings is a clear indication that we are moving in the right direction. (PMB)
This is at best mixed. Nigeria remains an uncompetitive economy as demonstrated by the recent World Economic Forum [WEF], Global Competitiveness Index which positions Nigeria as 115th of 140 Countries. The World Economic Forum Report shows that Nigeria has moved three places down- contrary to the claim that ‘we are moving in the right direction’. Nigeria remains one of the most difficult places to do business as evidenced by the massive outflows of capital in recent times. Regrettably, Nigeria’s score has fallen and its ranking deteriorated every year since 2012.
Claim No. 9:
We have therefore made strenuous and successful efforts to overcome the insurgency in the North-East and to resolve inter-communal misunderstandings elsewhere. (PMB)
The successes were short-lived. There has been a resurgence of the insurgency in the North East. Communal strife and banditry have spread to several parts of the country- especially the North Central and NW geo-political zones., with several losses of precious lives. The IDPs are unable to return to their towns and villages and there are reports that the insurgents are still in control of many local areas.
Is there any serious prospect in the 2019 budget?
The key question is: can the 2019 budget place the economy on the path of inclusive, diversified and sustainable growth in order to continue to lift significant numbers of our citizens out of poverty as PMB claims?
Here are reasons why it cannot
1. The 2019 is built on a very shaky foundation. The 2018 budget was poorly implemented as demonstrated below:
a. Actual revenue collected was only N2.84 trillion (as at September 2018) against projected revenue of N7.17 trillion. This implied that as at September 2018, only approximately 40% of projected revenues were realized by the Federal Government. The Federal Government indeed faced a fiscal crisis which it could not manage.
b. By December 14 2018, only N820.57 billion was released for capital spending out of a projected expenditure of N2.652 trillion. This implied that only 31% of the capital budget was implemented. This would impact on growth, jobs and poverty.
c. As at September 2018, the Federal Government had spent N4.59 trillion out of budgeted expenditure of N9.12 trillion. The prorated expenditure was N6.84 trillion. Thus, budget performance on the expenditure side was 67%. This looks high BUT only because recurrent spending and debt service were high.
d. With such a dismal budget performance, the economy would NOT have had the capacity to grow, generate wealth and jobs.
The 2019 is a business as usual budget. The Federal Government keeps repeating the same mistakes BUT expects different results. For example:
a. The budget is overwhelmingly recurrent, with Capital spending taking the back seat.
b. Government does not intend to introduce significant fiscal restructuring in spite of dwindling revenues. Subsidy on PMS will continue (US$1 billion is budgeted for that)
c. Government does not intend to introduce any reforms in the foreign exchange market. Multiple exchange rates will be maintained.
d. Government will resort to deficit financing to close a huge budget gap.
3. 2019 Budget is based on grossly exaggerated assumptions. They are NOT able to put in place any coherent and comprehensive policies to ensure that these assumptions can be met. For example
a. Oil price benchmark of $60 per barrel: Oil market has been turbulent in recent weeks and Brent Crude sells at less than US$60. There are projections of over-supply resulting from US shale production and pressure on Saudi by the US not to cut production.
b. Oil production estimate of 2.3 million barrels per day, including condensates; Throughout 2018, average production was 1.95 million barrels per day. There are no reasons to suggest this will change. This implies that revenue targets to implement the budget will not be met.
d. Real GDP growth of 3.01 percent; GDP growth has been sluggish. The projected growth is 1.9% in 2019. The government cannot cut spending and expect the economy to grow.
e. Inflation Rate of 9.98 percent: inflation rate rose to 11.28% in November from 11.26% in October. The implementation of the minimum wage may increase the pressure on prices and inflation may actually increase.
4. 2019 Budget is very small. The size of the budget is not sufficient to stimulate growth of the economy, create jobs and alleviate poverty. The planned total expenditure of N8.83 trillion is lower than 2018 budget by approximately N290 billion. The Federal Government is contracting the economy whereas in a period of recession, governments MUST spend more to have meaningful impact on jobs and poverty.
5. The budget is also very low in relation to the size of the Nigerian economy, which is estimated at approximately N150 trillion. This means that the 2019 budget is barely 6% of GDP. (compare Bangladesh 15.30%, India 12.74% and Afghanistan 11.9% in 2017). Again, this will have no meaningful impact on jobs and poverty.
6. Fiscal crisis persists and fiscal position of the Federal Government, and by extension, the states and local governments remains precarious. First, projected revenues of N6.97 trillion are 3% lower than 2018 and second, the oil sector continues its dominance as it contributes 54% of the budget revenues. The non-oil sector is expected to contribute only 20% of the budget revenues. There are no coherent and comprehensive plans to expand the resource horizon of the Federal Government.
7. Federal government resorts to deficit financing to close the budget gap. As a result of the brewing fiscal crisis, budget deficit remains high at N1.86 trillion. This is equivalent to 21% of the budget and 1.3% of GDP.
8. The implication is that the Federal Government will need to borrow more in 2018 to implement the budget. Debt Service is already putting a strain on government revenues. The sum of N2.14 trillion has been provided for debt service. This means that 30% of projected revenue will be used in debt service!
9. Recurrent costs and debt service will take a lion share of the budget as against capital expenditure. Capital expenditure will be only 23% of planned expenditure. On the other hand, 24% of the budget will be spent on debt service and 46% on overhead and personnel costs. Thus over 70% of the budget will be devoted to recurrent costs and debt service. This will not grow the economy and create jobs.
– Umar Garba Pella, is a Political Economist.
