MTEF: Nigeria’s roadmap towards budgeting for ‘Change’

Minister of Budget and National Planning Senator Udoma Udo Udoma
Minister of Budget and National Planning Senator Udoma Udo Udoma

On December 7, 2015, Udoma Udoma, the Minister of Budget and National Planning, said that the Federal Executive Council has agreed on a N6 trillion (30 billion dollars) budget for 2016.

An overview of the Federal Government projected total spending showed that its N1.4 trillion higher than N4.6trillion approved for 2015.

The benchmark oil price was pegged at $38 or 28 per cent lower than $53 used benchmark oil price in 2015 budget.

The Government also maintained the Central Bank of Nigeria, CBN’s foreign exchange rate of N198 to the dollar.

Although the full details of the budget have not been released, the federal government medium term expenditure framework, MTEF, showed that the mission of the budget is to have a sustained expanded economy.

The expansionary mission of the 2016 budget proposals to a large extent drew it’s strength from the 2.8 per cent GDP growth recorded in the third quarter of 2015.

However, some of the assumptions contained in the MTEF like pegging of average crude oil production at 2.2 million, the proposed allocation of N1.18 trillion ($9.1billion) or 30 per cent of total budget for capital items, allocation of N500 billion ($2.5billion) for social security makes the proposed budget very realistic.

In 2015, government used 2.28 million barrels per day as the benchmark for the budget and proposed N700 billion or 15 per cent of the total spending for capital projects.

A critical study of the MTEF also showed that government is trying to work its electioneering promises of addressing the nation’s huge infrastructure gap and visibly mitigate the needs of poor Nigerians.

With the federal government projected total revenue estimated at N3.82 trillion or ($19 billion), it implies that the budget will carry a projected deficit of N2.22 trillion ($11 billion).

What comes to mind quickly from the assumptions is where will government get the needed funds against the daily slide of crude oil in the international market?

Although the MTEF was silent on the source of funding of the proposed budget in 2016, especially the staggering N2.22 trillion deficits, it equally failed to explain how and what government would
do if the assumptions increases or falls short of projections.

But from the spirit and letter of the MTEF, some experts said that government is likely to shore up earnings from non oil sector and sustain the ongoing reduction of its ministries, departments and agencies.

The other arguments include that government would within the time frame of MTEF aggressively engage in domestic and foreign borrowings, increase in VAT, sustain stiffer control of foreign currency and diversion of subsidy savings into the social security programme.

Sherifadeen Tella of Olabisi Onabanjo University, Ago Iwoye, Ogun State, said that government’s viable option to increase the non-oil sector of the economy might lead to crowding out investments and over-taxation.

Mr. Tella, a professor of economics, said that incremental budgeting amid dwindling revenue from crude oil makes it very difficult for government to meet set targets in provision of infrastructure and creating a sustainable social welfare scheme.

“Although the MTEF gives government opportunity to adjust to the global and domestic economic challenges, some of the assumptions and set targets of the economic framework are unrealistic.

“We appreciate the federal government’s sentimental attachment toward providing dividends of democracy but they needed to be more conservative in budgeting,” Mr. Tella said.

According to the don, MTEF clearly showed that three things, creating a social security, bolstering non-oil revenue and external borrowing, were paramount to federal government in meeting the objective of the 2016 budget.

But outside describing the social security as a welcome development, he urged federal government to partner with other tiers of government in phased approach.

To him, the partnership and phased unveiling of the programme would provide enough time for the harmonization of data and identification of a seamless platform of reaching vulnerable Nigerians.

“The collation of data so far warehoused by mobile telephone companies and commercial banks will assist in shaking off the appendage of political patronage and making it a national progamme,”
he added.

Funding this deficit through bolstering non-oil revenue collection as well as aggressive borrowing, Tella said, also has an inherent risk of shooting up domestic rates and its implication on commodity prices.

Mr. Tella said why it is still unclear if the fuel subsidy would be retained in 2016, the intention of using the subsidy savings for social security would be the best gift for Nigerians in the New Year.

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