MTEF: Divergent views trail proposed 2016 budget

President BuhariThe recently approved Medium Term Expenditure Framework (MTEF), which has a provisional budget proposal of N6trillion for 2016, has continued to generate controversy as analysts disagree on the ability of the Federal Government to jump-start the sluggish economy. Although the full details of the proposed budget are yet to be submitted to the National Assembly, details of the budget gleaned from the MTEF shows N6.07trillion budget as benchmarks for crude oil price of $38, crude oil production at 2.2million barrels per day, and foreign exchange rate of N198 to a dollar.

The budget pegs capital expenditure at N1.81trillion or 30 percent of the total budget while N500billion, about 8.3 percent of the budget is allocated for social welfare programmes. Capital expenditure doubles what was appropriated last year. The budget is projected to be in the red to the tune of N2.2trillion which the government promised will be financed from non-oil revenue sources, efficient enforcement of Value-added tax and corporate income taxes. The rest will be plugged by borrowing from both internal and external sources.

The proposed budget has earned government commendation from some observers who applaud the strong social welfare slant of the budget. In their views, this is the first time any government under the current democratic dispensation will openly allocate funds for social welfare purposes. “The government has done the right thing with the N500billion budget for social welfare programme. This economy needs to be reflated and the increased capital and welfare budget will do just that,” says Timothy Adejuwon, a civil servant. Analysts believe the welfare budget is in line with President Muhammadu Buhari’s promise to make good his campaign promises to pay stipends to unemployed Nigerians.

Many agree that reflating the sluggish economy should be a priority for the government even as they blame it for the state of the economy. For taking about six months to shop for ministers, critics believe the economy lacked policy direction which kept it in limbo. With the ministers’ appointment, the government is believed to be on the right track towards kick-starting the economy. Suggestions are already flooding in on how to utilise the welfare budget even as some want the government to boost it further by withdrawing the subsidy which the President so far has resisted. “Free education at all levels for low income earners will be a better way to spend the welfare budget,” says Adesuwa Igbinosun, an educationist. Others suggest free healthcare for expectant mothers, disabled and the aged. However, the welfare package as promised by government will involve conditional cash-transfers such as children’s enrolment in school or evidence of immunisation.

Just as the government is being commended for the social welfare package in the budget, critics are asking how the government will finance the huge deficit that is about 36 percent of the total budget. The N2.2trillion deficit is more than the capital expenditure budget and about 58 percent of the projected total revenue of the budget. Although the government has made effort to reduce the recurrent expenditure component of the budget such as cutting the budget of the National Assembly from N120billion in 2015 to N115billion in 2016. It has also reduced the amnesty budget from N47.39billion in 2015 to N20billion in the proposed budget and slashed the subsidy budget to N213billion, which comprises N150billion outstanding arrears from 2015 and N63.3billion for 2016. Given the low price of crude oil, non-oil revenue sources will form the bulk of revenue generation as VAT is expected to bring in N67.7billion, N350.3billion will be recovered from misappropriated funds, and N137.90billion will be recovered from strategic alliance contracts entered into by the Nigerian Petroleum Development Company (NPDC) with some oil firms. The NNPC along with the CBN are expected to cough out N162.43billion and N50billion respectively. All told about N600billion will be raised from these non-oil sources while the remaining will be debt financed externally and domestically with N1.2trillion and N635billion respectively.

To Sheriffdeen Tella, Professor of Economics at Onabisi Onabanjo University, increasing budget in a time of dwindling revenue from crude oil makes it difficult for government to meet set targets. The viable option of non-oil sector could lead to crowding out investments and excessive taxation. The World Bank thinks now is the best time for the government to withdraw subsidies as the low crude oil price will not push the retail price of petrol beyond N100 per litre. “The fuel subsidy appears to have vast modest benefits for the majority of citizens but the costs are quite high. There is a strong tendency for the cost of fuel subsidy to increase over time as increasing domestic demand for petrol outpaces growth in oil revenue or output,” says John Litwack, World Bank Lead Economist for the Nigeria Economic Report. But not many Nigerians will agree with the World Bank assertion that pump price of fuel will not exceed N100 as some fuel stations are selling at N150 per litre in the ongoing scarcity.

The Buhari administration may have tacitly heeded the advice of the World Bank as it is set to increase the retail price of fuel to N97 as recently disclosed by the Minister of State for Petroleum, Dr.Ibe Kachikwu which tallies with the low subsidy budget for 2016. To analysts the ability of the federal government to finance the budget and control inflationary pressure that may arise thereof remains to be seen.

By Osaze Omoragbon

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