2014 Budget: The promises, the drawbacks

[stumble][Google][pinterest][follow id=”@DER29709692″ size=”large” count=”true” ]

41590672

The 2014 appropriation bill presented by the Federal Government is christened “Budget for Job Creation and Inclusive Growth,” but analysts argue that the fiscal structure is certainly not in the best interest of the economy and not consistent with the objective of job creation and inclusive growth By Dike Onwuamaeze It was the second time in the history of the Nigerian presidential system that an incumbent President would fail to personally present his annual budget proposal at a joint sitting of National Assembly for passage into an Appropriation Act. The first time was in November 2009 when the late President Umaru Musa Yar’Adua sent the budget proposal separately to the Senate and the House of Representatives through Senator Mohammed Abba Aji, who was then special adviser on National Assembly matter to the late President. This trend repeated itself on December 19, 2013, when President Goodluck Jonathan delegated Dr. Ngozi Okonjo-Iweala, minister of finance and Coordinating Minister of the economy, to present the 2014 budget proposal of N4.6 trillion at a joint session of the National Assembly. It is N100 billion less than the N4.7 trillion that the President proposed for the 2013 fiscal year. It also allocated the sum of N712 billion, about $4.45 billion, for debt servicing in 2014. The projected revenue for 2014 fiscal year is N3.73 trillion. The proposed budget, which is christened “Budget for Job Creation and Inclusive Growth,” has a deficit of N870 billion. According to Okonjo-Iweala, the deficit which is 1.9 percent of the gross domestic product, GDP, is still within the three percent limit stipulated in the Fiscal Responsibility Act of 2007. In 2013, the fiscal deficit was 1.85 percent. The budget assumption is based on crude oil price benchmark of $77.5 per barrel, crude oil production of 2, 3883 million barrels per day and an average exchange rate of N160 per US Dollar while the gross domestic product, GPD, is expected to grow at the rate of 6.75 percent. The highlights of the proposed budget are made up of N2.4 trillion for non debt recurrent expenditure, N1.1 trillion for capital expenditure while N399.7 billion is set aside for statutory transfers. The share of recurrent expenditure in the proposed budget is 76.3 percent while the capital expenditure is 23.7 percent. This is a negation of Okonjo-Iweala’s promise in 2012 to progressively increase the share of capital expenditure against recurrent expenditure. She, however, attributed the high level of recurrent expenditure in the 2014 budget to increasing wage bill in the public sector due to the duplication of government agencies. “The high share of recurrent expenditure in the budget is of great concern as it reduces the size of funds available for investments in capital project. We worked hard to reduce this ratio from 74.4 percent in 2011 to 71.5 percent in 2012 and further to 67.5 percent in 2013. But it has risen back to 74 percent in 2014. There are also additional pension arrears, which will need to be incorporated in our recurrent budgets in the future. So, the size of spending on recurrent expenses will increase further in the future if we do not take any further action,” she said. The finance minister said on January 20, during the presentation of the budget breakdown, that the country must make some hard choices about the structure of the national budget. “We need to strike a balance between a growing wage bill for the public sector and investing more of our resources in infrastructure projects,” she said. Okonjo-Iweala described the proposed appropriation bill to be targeted at continuing President Jonathan’s transformation agenda in several sectors of the economy. She explained that the budget would support agriculture and kick-start the housing sector where the country could create more jobs. “It is designed for our policies that would support manufacturing because jobs would be created there. Industries will also be created in solid minerals sector. All these support will continue to be unleashed. Job creation is the key to really solving the problems of the Nigerian economy. All the programmes that create jobs are very well supported, the SURE -P is also part of it, community services programmes would be pushed, the You-Win programme would be pushed,” she said. The Minister further said that the government would pursue infrastructural development vigourously in 2014. “The infrastructure development is part of it. The Hon. Minister of Transport is here. We have been working on rail development. Ministry of Niger Delta is also part of the infrastructure development, Water resources, FCT development and so on.” Bright Okogu, director-general, Budget Office, said that only N646.8 billion was utilized in 2013 for capital project. This is barely 50 percent of capital allocation in 2013. However, analysts have faulted some aspects of the budget. For instance, the Lagos Chamber of Commerce and Industry, LCCI, believes that the disproportionate share of the recurrent expenditure is clearly not consistent with urgent need to fix the huge infrastructure deficit in the economy. It argued that some of the implications of the imbalance in the structure of the budget for the economy include low investment in infrastructure, weak competitiveness and productivity of enterprises in the economy as infrastructure remains weak and risk of wasteful spending and corruption as recurrent expenditures are generally more susceptible to abuses. Remi Bello, president of LCCI, said the Chamber “is concerned that in the past couple of years, an increasing proportion of the nation’s resources are being committed to recurrent spending, which is also a reflection of higher consumption spending as against investment expenditure. This fiscal structure is certainly not in the best interest of the economy and not consistent with the objective of job creation and inclusive growth. The National Assembly would therefore need to address the relativity of recurrent and capital expenditure proposals.” The chamber also pointed out the dangers in allocating N1.65trillion, which is about 36% of the entire budget, to the Federal Ministry of Finance. They include the risk of over-centralization of expenditure which may affect the speed of its delivery and implementation as well as checks and balances. “We call for decentralization of expenditure items under the Consolidated Revenue Fund Charges to the relevant Ministries, Departments and Agencies (MDAs). This will facilitate transparency and more effective over-sight. Additionally, the administration of the Gratuity and Pension funds under this budget head should be transferred to the Pension Fund Administrators and Custodians to reduce the corruption vulnerability of the funds which has been a major issue over the years,” Bello said. The allocation of N712 billion for debt servicing alone, which is 64.72 percent of the proposed capital budget, is a pointer that the country is faced with real debt burden. According to the chamber, the allocation of this staggering amount is clearly not in tune with the country’s current development priorities. “In an economy with a huge infrastructure deficit, poorly funded institutions and poverty incidence of over 65 percent, spending an equivalent of $4.6billion on interest payment in one year is difficult to justify. It is instructive as well that the debt service appropriation is equivalent to 712 percent of the capital vote for the Ministry of Works (N100 billion); 2455 percent of capital budget for Ministry of Transport (29 billion); 1548 percent of capital vote to Ministry of Health (N46 billion) and 2034 percent of capital vote to Ministry of Agriculture (N35billion),” the chamber said. The chamber also appealed to the National Assembly to ensure a speedy passage of the Appropriation bill, especially in the light of the time lost to the consideration of the MTEF last year. “Delayed passage of budget has the negative implication of worsening the problem of uncertainty in the economy. The consideration of the budget should be in the overall national interest and devoid of all forms of partisanship.” The poor implementation of the capital budget has dampened the enthusiasm of many Nigerians about the national budgetary process. Mike Obadan, professor of Economics, University of Benin, told TheEconomy that he was no longer excited about the announcement of national budget because it is not going to be different from previous ones in terms of implementation and outcomes. “The Nigerian people, including myself, have begun to lose confidence in the annual government budget because of very poor implementation of the capital component of the budget and limited development outcomes,” Obadan said. He explained that although the government budget serves as the primary tool for the mobilization, allocation and management of resources as well as a veritable instrument for achieving quality economic growth, poverty reduction, high level of employment, first grade infrastructure and utilities, social services and generally improvements in the quality life of the citizens in most countries, the reverse is the case in Nigeria. “In Nigeria, the government budget has, in a sense, turned out to be an annual ritual in which the citizens have lost much faith for the simple reason that budgeted monies allegedly spent have yielded little or no values because of corruption and mismanagement,” Obadan said. He also noted that the high recurrent expenditure signifies government’s inability to cut down the very high cost of governance, which is mostly unnecessary and wasteful and against the international best practice that suggests a recurrent expenditure to total budget ratio of about 60 percent – realized and not budgeted. According to him, government has no problem in absorbing recurrent budget funds, which is, most of the time, fully implemented or even exceeded. The persistent problem is poor capital budget implementation. Many factors, he said, are responsible for poor capital budget implementation. “My study of this problem a few years ago for the government/World Bank revealed a number of pertinent factors. One of these is late presentation of the budget to the National Assembly and late enactment of the budget; budgets are sometimes passed into an Act six months into the new fiscal year. It means then that only a few months are available for implementation of the capital budget while the Constitution allows the recurrent budget to be implemented even when the appropriation bill is not yet enacted into law. Another factor is limited absorptive capacity of some of the ministries, departments and agencies (MDAs), especially technical expertise to implement the budget. Yet, another factor is the unrealistic nature of the budget. Very often, the budgets are overloaded with all kinds of things irrespective of whether or not they are implementable.” He identified the executive and the legislature as the sources of this problem, which begins when the MDAs lobby or put pressure on the Legislature to increase the allocations proposed for them by the executive. At the end of the year, only a tiny proportion of the budget is implemented. “In the succeeding year, the same scenario is repeated. Thus, the government has not learnt any lessons from past budget implementation and international best practices.” Other factors affecting budget implementation include poor revenue forecasts, poor revenue out-turns, untimely releases of budgeted funds and problems from contractors executing projects etc. The Nigeria Employers’ Consultative Association (NECA) also doubted the ability of the 2014 proposed budget to support jobs creation because of the reduced allocation to capital expenses. According to Olusegun Oshinowo, director-general of NECA, the federal government budget for capital expenditure in 2014 is N1.1 trillion against the N1.7 trillion it set aside for the same purpose in 2013. This represents a shortfall of N600 billion. He pointed out that Nigeria cannot run away from the classical employment model of growth in any economy, which is driven by certain variables such as investment, output and government expenditure. “We should look at these variables and ask whether we have gotten the fundamentals right. For instance, investment is a key variable which if we get it right things will be better for our economy. Government expenditure is another variable that drives growth and a situation where about 75 percent of government annual budget is going to recurrent expenditure is worrisome. No economy can grow if we have that structure in place. But where the bulk of government budget is going into capital expenditure then entrepreneurs and businesses will build on that capacity to improve on the overall performance of the economy. No entrepreneur is going into business to create jobs but to make profit and in doing this, they require human capital. So if the right environment and basic infrastructure are in place, then they will be able to create jobs in the country,” Oshinowo said.
 [divider]

No materials in this story in part or whole should be reused without the approval of  

THE ECONOMY

About The Author

Related posts

Please wait, while your subscription is progressing...

Subscribe to TheEconomy Newsletters & Notifications

Want to be notified when our article and news are published? Enter your email address and name below to be the first to know.