Recent developments in the international oil market have given officials of the Nigerian government a huge relieve over the implementation of 2017 budget. The reason is that the price of crude oil rose to $58 per barrel, the highest in the last 18 months. Matched against the proposed 2017 budget based on crude oil price of $42.5 per barrel and 2.2 million barrels daily production, this development translates to additional N500.4 billion revenue inflow outside the budgetary estimates.
The federal government is proposing a budget of N7.28 trillion for the year 2017. while the balance is derivable from non-oil sources. According to President Muhammadu Buhari, the aggregated revenue available to fund the 2017 is N4.94 trillion, 28 per cent higher than the 2016 budget. He said that oil was projected to contribute N1.99 trillion of the amount and non-oil revenue would be contributing N1.73 trillion. This fiscal plan will result in a deficit of N2.36 trillion for 2017 which is about 2.18 per cent of GDP. The deficit will be financed mainly by borrowing, which is projected to be about N2.32 trillion. “Our intention is to source N1.067 trillion or about 46 per cent of this borrowing from external sources while, N1.254 trillion will be borrowed from the domestic market,’ he said. Herein lies the problem.
The Buhari government plans to borrow a total of N2.3 trillion, out of which N1.5 trillion would be sourced locally, while the balance would be sourced from multilateral lending institutions. But experts fear that the federal government will have difficulties with the implementation of the 2017 budget. The reason is simple: it failed in its attempt to borrow the external component of the N1.8 trillion it built into the 2016 budget, which made it largely un-implementable. They insist that the same fate awaits budget 2017.
When President Buhari’s plan to borrow $29,960 billion from foreign sources was turned down by the Senate recently, Sanusi Lamido, Emir of Kano and former governor of CBN, said it would be difficult for the loan to be granted because Nigeria had five exchange rates. Sanusi who has often criticised Buhari’s economic policy, said that even if the National Assembly eventually grants the request, no global financial institution would give such loan.
“I will like to see how you will go to the international market with an economy that has five exchange rates. There is one rate for petroleum marketers, there is interbank rate, there is another for money market operators such as western union, moneygram, there is bureau de change rate and there is a special rate you get when you call the CBN for a transaction. So who will lend you money when they don’t know your exact reserve and exchange rate? I want to see who will lend you money when the Niger Delta bombing of oil is there, when the main source of the loan repayment is oil,” said Sanusi.
Johnson Chukwu, chief executive officer, Cowry Asset Management Limited, also expressed concerns over the federal government’s intention to borrow N1.254 trillion from the domestic market to finance the budget deficit of N2.36 trillion. Chukwu said the decision would have significant impact on the ability of private investors to get funding from the banks and other lenders. He stated that the government had said it would restructure the national debt so that 60 per cent would be foreign, and the balance would be local.
Sherriffdeen Tella, professor of Economics at the Olabisi Onabanjo University, Ago Iwoye, expressed doubt that the government would be able to raise up to the N7.3tn it planned to spend in the budget. He noted that the government was still battling with how to raise funds to implement the 2016 budget.
Experts have also faulted the oil benchmark price of $42.5 per barrel for 2017, $45 in 2018 and $50 for 2019, saying, though realistic based on recent developments in the oil sector, but fear that projections for production volumes may not be realisable due to incessant militant attacks on oil and gas infrastructure that have reduced production to its lowest level in 30 years. For instance, whereas the 2016 budget was based on oil production of 2.2 million barrels per day at 38 dollars a barrel, production since January remained below 2 million bpd on account of militant activities and shutting of prominent terminals for repairs. “The problems in the Niger Delta have affected production volumes and this has impacted 2016 revenues. The government now struggles to pay salaries, so I doubt that this projection is realistic and the Federal Government has to look into it to forestall the current situation,” Taiwo Oyedele, head of Tax at PwC, explained last week.
Last week, Kemi Adeosun, finance minister, announced that the federal, states and local governments shared N559.03 from the FAAC account in June, the highest since 2016 fiscal year. Rather than the oil sector contributing the highest to Federal earnings as has been the situation in the past, Adeosun attributed the increase in revenue to efficiency in collection by the revenue generating agencies. “The big cause of the increase is the improvement of non-oil revenue from FIRS. The FIRS improved its performance between last month and this month by N165 billion. And that accounted for the change in revenue and also, there was an improvement of N12.6 billion by the Nigeria Customs Service, as well as the exchange gain of N79.2 billion,” She said.
To many Nigerians, the current problems in the Niger Delta have to be resolved before there can be improvement in production volumes. But Udoma Udoma, minister of budget and planning, assured last week that the federal government was in talks with representatives of militant groups in the Niger Delta. It recently met with selected groups of militants from the region in a bid to halt attacks on oil pipelines in the region. “We want to be more engaging in the Niger Delta to ensure that there is peace in order for us to produce. We will be increasing the amount for the Amnesty Programme to the old figure. It is important to engage the people in the Niger Delta region,” Udoma said.
To this effect, the federal government has budgeted N110 billion for the smooth implementation of its Presidential Amnesty Programme and the rehabilitation of the North East region devastated by the activities of the Boko Haram insurgency. He said, “Provision has also been made in these estimates for activities that will foster a safe and conducive atmosphere for the pursuit of economic and social activities.”
Indeed, the budget is good news to Nigerians as far as their quest for world-class infrastructure is concerned, with the federal government earmarking N213 billion to fast-track the modernisation of the country’s rail system in 2017. President Buhari said the amount would represent the counterpart funding for the Lagos-Kano, Calabar-Lagos, Ajaokuta-Itakpe- Warri railway, and Kaduna-Abuja railway projects. “As I mentioned earlier, in 2016, we invested a lot of time ensuring the paper work is done properly while negotiating the best deal for Nigeria. I must admit this took longer than expected, but I am optimistic that these projects will commence in 2017 for all to see,” said Buhari.
The President further disclosed that N50 billion had been set aside as federal government’s contribution for the expansion of existing, as well as the development of new, Export Processing and Special Economic Zones. He said, “These will be developed in partnership with the private sector as we continue our efforts to promote and protect Nigerian businesses. Furthermore, as the benefits of agriculture and mining are starting to become visible, I have instructed that the Export Expansion Grant be revived in the form of tax credits to companies,” continued the president.
According to him, this will further enhance the development of the agriculture and mining sectors thereby bringing in more investments and creating more jobs. About N20 billion has been voted for this programme. The President stated that N15 billion had been provided for the recapitalisation of the Bank of Industry and the Bank of Agriculture to address the difficulties being faced by small and medium scale businesses in accessing longer term and more affordable credit. He said, in addition, the Development Bank of Nigeria would soon start operations with $1.3 billion focused exclusively on Small and Medium-Sized Enterprises.
But of what use is the budget if it is not implemented? Abdullahi Gana, a civil servant in Maiduguri, Borno State, said the 2016 budget had not yielded much positive result. “What particular project has been carried out with the 2016 budget. The citizens haven’t felt the benefits of this year’s budgetary dispensations and are very hungry. They cannot find the time to listen or read about 2017 figures when that of 2016 hasn’t helped their lives. The government must find a way to circulate money in the economy so that it gets to the impoverished and hungry citizens,” Gana said.
To many Nigerians, they cannot be bothered by the rhetoric of annual budget. The under performance of the 2016 budget is just the latest in a series of government’s failed efforts at infrastructure provision in the last 18 years, despite budgeting a total of N53 trillion within the period.
The nation’s yearly budget, which started from a modest expenditure plan of N948 billion in 1999 and grew to N6.06 trillion this year, with N7 trillion budgeted for 2017. The combination of frivolous and fictitious heads and duplication of items in budgets have marred the implementation of past budgets. That is why Nigerians fear that budget 2017 might suffer the same fate.