BudgIT Analysis: 2015 budget shows govt. not committed to austerity measures as oil price falls

FILE PHOTO: Former Finance minister, Ngozi Okonjo-Iweala laying the budget before National Assembly Lawmakers

Forecasting is an occupation that confers respectability on the field of astrology. But, even everyday people have the right to predict the scale of the dark storm hovering over Nigeria’s economy as the oil price continues its free summersaults. Such is the dire situation of a country whose finances depend mostly on a mono-product – crude oil.

When oil price stood above the $79 per barrel benchmark used in estimating the 2013 budget, the Nigerian government had to resort to borrowing (N744billion) to meet her capital expenditure obligations due to revenue shortfall. At the moment, oil price hangs around $61 a barrel (below the benchmark price of $65 per barrel), and the market threat to drag prices even lower is stronger than we have ever known. What will 2015 hold for Nigeria’s finances?

Where’s the austerity?

The 2015 Budget Appropriation Bill as presented to the National Assembly on December 18, 2014 contradicts the basic economic definition of austerity. If the common man is a priority in government’s strategy, the sharp dip in the capital expenditure negates that notion. Austerity describes policies used to tighten government expenditure, close loopholes that cause revenue losses and a gross reduction of budget deficits during adverse economic conditions. However, from the recent steps taken, Nigeria is simply prioritizing government staffing and wage bills, as against the overall health of the economy.

From Table 1 below, based on BudgIT’s analysis, recurrent expenditure (salaries, overheads, statutory transfers and debt service costs) totaled N3.97trillion, which is an unbelievable 91% of the entire 2015 budget proposal. Our analysis treats subsidy for reinvestment and empowerment programme (SURE-P) as an externality to the aggregate budget, because except the oil price rises, the landing cost of fuel will still be low, leaving too little savings for SURE-P. Typically, this is to say that the aggregate budget as presented currently is to keep government running – nothing more.

budgt

While presenting the budget, Minister of Finance, Ngozi Okonjo-Iweala, subtly micromanaged the flaws in the 2015 Appropriation Bill, announcing to the world that Nigeria will be running a capital budget of N634billion, leaving Nigerians with the impression that the capital expenditure figure is inclusive of SURE-P.
If the total recurrent expenditure of N3.97trillion (as placed in Table1 above) is removed from the aggregate budget expenditure of N4.358trillion, then “the common man’s priority ” – the capital expenditure – will come down to a paltry N387billion, a mere 9% of the budget.

Comparing the 2015 capital vote of N387billion to N1.119trillion provision in 2014, the stark difference is very frightening. This corroborates BudgIT’s recent policy paper, which asserted that capital expenditure would be under severe threat in an era of declining oil prices.

To actually show that government is not applying any cuts, note that statutory transfers to public institutions, such as National Assembly, National Judicial Council, Independent National Electoral Commission (INEC), etc. go up from N408.69billion (2014) to N411.84billion (2015 proposed), notoriously higher than the Capital budget (N387billion) in a country with a gross infrastructure deficit?

The Debt Trap

Nigeria has also been subtly accumulating debts in recent times, with domestic debt rising from N4.55trillion in 2010 to N7.65trillion as at September 2014. It is very alarming to see debt servicing fees rise from N828billion in 2013 to N943billion in 2015, an equivalent of 22% of the aggregate expenditure.

Key questions requiring pertinent answers from our budget managers. Why will personnel costs increase from N1.77trillion (2014) to N1.84trillion (2015)? Is the government planning a massive recruitment drive in an austerity year? Or is this being brought on by the proposed elections in 2015?

One thing for sure is that part of the recurrent component of the 2015 Appropriation Bill will be funded with debt. The budget deficit, which should mainly finance capital projects in line with the provisions of the Fiscal Responsibility Act (FRA) is higher than the capital expenditure budget. This means, as presented, the executive is seeking approval from the NASS to borrow N387billion to finance the entire capital budget and the remaining balance (N368billion) of the proposed deficit will be spent on recurrent items.

The government is also planning to draw down N80billion from the excess crude account (ECA), which is only possible if the oil price rises above $65 per barrel oil benchmark proposed in the budget.

In other words, if oil prices stay below $65 per barrel, there will be more borrowing. If the volume of crude oil sold falls short of targets, more borrowing. If the overly optimistic non-oil revenue generation target, which the government has failed to raise successively, falls short, government’s borrowing spree will continue to meets its obligations.

What if oil prices stay below $50; how does the government intend to survive, including the states and local governments, most of which are already struggling to meet their obligations to workers and people in their various domains? Our reforms are therefore long overdue.

Borrowing and budgeting are not strange bedfellows. Nigeria over the years consistently failed to meet revenue targets, even when crude oil stayed above set benchmark price.

In 2013, oil revenue actual receipts for the federal government totaled N1.99trillion, as against N2.35trillion projected in that year’s budget, despite oil prices staying above average $100 per barrel against the $79 per barrel benchmark.

Non-oil revenue, including independent revenue form government agencies, was actually N1.07billion in 2013, as against N1.48trillion proposed in the budget for 2013. The shortfalls have always been financed by borrowing, or deferred capital spending. Therefore, even at a N1.68trillion non-revenue target for 2015 budget, Nigeria has set the bar high for massive borrowing during the year.

Non-Oil Revenue Assumptions

The spirit of the budget in terms of non-oil revenue growth is good. But how can a 10% import surcharge on new private jets, a 39% import surcharge on luxury yachts, a 5% import surcharge on luxury cars and a 3% luxury surcharge on champagnes, wines & spirits solve decades-old problems in its first effectual year?

Even then, is there any guarantee that this target will be met? How effective would these be? What core rationale would drive tax collection under the Federal Inland Revenue Service (FIRS)/McKinsey initiative, which expects to generate N160billion to shore up Nigeria’s coffers in 2015? What will become of government revenue from Customs and Excise duties when the Economic Community of West African States (ECOWAS) common external tariffs (CET) comes into force in 2015? Is the government Appropriation Bill using its impact study of the ECOWAS CET to project revenue streams?

Revenue Component-page-001

Source: BudgIT, Ministry of Finance, Center for Social Justice

Based on documented presentations/speeches, Nigeria will spend N20billion (N16billion already earmarked in 2014 budget) to create a Development Finance Institution (DFI), described as “a wholesale financial institution that will support our private sector, especially small and medium enterprises (SMEs), to access more affordable financing with longer tenure.”

Intervention programmes as stated include the Presidential Initiative for the North East Security (PINES) increased from N2 billion to N5 billion, social safety nets are expected to reach three million households in 10 years, and the transfer of 2,400 children from high-risk areas for the full implementation of the Safe Schools Initiative (SSI).

The solutions needed in these dire times are pretty obvious. Government itself needs to take on more austerity measures. The National Assembly must put a minimum of N50 billion from its allocation on the table of poor Nigerians as a starting point to creating tangible change. Independent revenue agencies need to double up their efforts. The Petroleum Industry Bill (PIB) bill must be given accelerated attention and passage, to mention just a few things that must happen to enable our mono-product economy weather the volatility of oil prices. It is time for the reforms that we have left too late.

Should reforms and austerity measures not take hold quickly, Nigeria will be left at the mercies of another miracle. A fervent prayer that the crude oil price hits a new ceiling. A safe haven that may or may never come. A ceiling that is the playground of world economic powers – Saudi, U.S., Russia – with Nigeria left feeling like the grass trodden underfoot by big elephants.

For the 2015 Budget to adequately oil the machinery of governance and Nigeria’s economy calls for a miracle, as estimates on the revenue end are overly optimistic. We have recurrent receipts which must be paid, as well as pressing capital expenditure obligations to citizens. Interesting times indeed lie ahead. Let’s pray for miracles. Nigerians need it now.

*BudgIT is an online analytics agency on public finance


DOWNLOAD THE PREMIUM TIMES MOBILE APP

Now available on

  Premium Times Android mobile applicationPremium Times iOS mobile applicationPremium Times blackberry mobile applicationPremium Times windows mobile application

TEXT AD: Revealed!!! The Only Way Left of Getting an Extra Large Manhood and also Last Up to 38Mins+. Get the Insider Secret Here


TEXT AD: This NAFDAC APPROVED Solution Will Make You Stay Longer Than 40Mins In Bed Tonight And Help Your Erection. Click Here To Read The Free Reports


All rights reserved. This material and any other material on this platform may not be reproduced, published, broadcast, written or distributed in full or in part, without written permission from PREMIUM TIMES.


  • amazing2012

    Jonathan is a curse on Nigeria ! Vote him out !! Or vote him in to continue with poverty, death and misery !!

    • Frank Bassey

      You don not understand what the problem is. Please get informed. Read my comment.

      • bros

        then what is the problem Ebele’s son. we are waiting for you and your father to profer solution

      • Okemute1

        Your previous comment is baseless at best. To you GEJ is president only in title. Some of you think president is a traditional title.

  • kwango

    A wise strategy is for the PDP federal government to beg PDP members across the country to donate generously part of the average of 80% recurrent budget they accumulated in the 16 years of PDP leadership. If a career civil servant like Jerry Gana and his friends can donate N5 billion to PDP for campaign alone, these ‘patriots’ can donate all of the 2015 budget deficit to suffering Nigerians. But you can’t return loot to the looters to manage, therefore we need new managers and that’s where GMB comes in. God help us.

  • Frank Bassey

    We are merely crying wolf without proffering SOLUTIONS. The question is, HOW do we reduce recurrent expenditure to boost capital expenditure? In a situation where 4% of the population consume about 40% of the nation’s recurrent expenditure is unhealthy. Are we prepared to implement Oronsanye Report, Danjuma Report, Anya Report, to reduce the size of bureaucracy? Will NASS be courageous enough to repel the laws establishing the MDAs performing duplicating functions? Will NASS members review their almost N3m monthly salary/allowance per 360 members? Will NASS revisit the N150 billion first charge on the budget appropriated to themselves? Will Labour co-operate in reducing the size of government workers? These are the issues. You cannot have your cake and eat it.

    • Amir

      In your warped thinking the president goes to sleep while opposition and national assembly solve the problem for which he is paid? What a spoon fed presidency?

    • Ibraheem Aruna

      The bane of this quagmire rests with the lack of courage on the part of the Finance Minister to advise her Principal the President on the need to reduce the size of government. What was her portfolio in the World Bank? The Honourable Minister would have had the courage to advise or instruct another government to do just that so why is she hesitant in the case of Nigeria. Mr Sanusi Lamido Sanusi had emphasized the need to reduce the cost of governance in Nigeria while he was CBN governor rather than support that call the Minister of Finance scorned at that suggestion and chose not to see the wood for the trees, now the chicken has come home to roost. The average Nigerian Lawmaker takes home more money in the name of salary and allowances than Barack Obama a man who works 24/7.Worst still nobody knows how much a Nigerian minister is paid for his services, definitely not far from that of a lawmaker . Nobody needs to go the Harvard School of government to realise the implication of this budget where over 90% of accrued income is used to finance recurrent expenditure. So where is money to build the necessary infrastructure to catch with the rest of the world?

  • Ette

    This is what you get when grossly incompetent, hugely corrupt, senseless, mago mago economists are at the helm of affairs. There is no truth in this wicked government and NOI true colour is now known, she was checkmated by SANUSI otherwise by now the Naira would be worse than what it is. As soon as they sacked SANUSI for revealing their wicked lootings, she was able to implement the agenda of her masters – IMF and world bank which is to render the Naira useless. Imagine when the price of oil was $110, was insisted on using $75 as the benchmark price but NASS moved it to $78, and now that price has gone down to $59, she wants to keep the benchmark at $65. This is voodoo economics or konjonomics. What a jaundiced government. We cannot wait for May 2015 to send this wicked government packing. God bless Nigeria.

    • Lanre

      “Konjonomics”. Me like. An aptly coined neologism to describe the management of an economy by putrefying, greedy elements bulging at the cheeks and seams with brie and alcohol as they belch out their remains for the poor folk of their society. A term used to describe an economy where their ruler declares that “Stealing is not Corruption”, $20b can get lost at sea since the society is ruled by drunkards. A society where numeration is a backward enterprise, hence 15 is greater than 19. Ette, I am patenting “Konjonomics” before you do.

  • Kay Soyemi (Esq.)

    This new face and arms of our dear Prime Minister, cum Finance Minister, is very, very robust and ruddy.

    The job must be very stressful not.

    Madam, please for your own sake, get a health check up or stop eating with 20 fingers.

    I shall now go back and read the article.

  • Lanre

    You are getting there Premium Times. Just like The Economist of London, your last two pieces on the economy combined with your columnist Ifeanyi Uddin present a veritable source of knowledge on the Nigerian Economy. Do not rest on your oars and be ready for critical discourse which advances knowledge. Or as The Economist puts it “to take part in a severe contest between intelligence, which presses
    forward, and an unworthy, timid ignorance obstructing our progress.”

  • Dr Pat Kolawole Awosan

    Dr Ngozi Okonjo Iweala as minister for finance lacks credibility and very incompetent with the ways and manners she handles Nigerian economy and the imprudent manner she disburses the excess crude account,73% of our annual budget funds still
    going for recurrent expenditure till now.Where are the restructuring of the economy and improvement in our economy despite the cooked up rebased-GDP as the largest economy in Africa?

  • Dr Pat Kolawole Awosan

    Dr Okonjo Iweala poor managerial skill with self-enrichment hidden plan landed Nigeria in the present state of financial mess after depleting the excess crude account and ran down Nigeria foreign reserve which Dr Okonjo Iweala and Mr Ebele Jonathan both jointly conspired to mismanaged.It is time for change.

  • Caleb Onyeabor

    The state of the Nigerian economy is disheartening. Despite the fact that we are being ushered into an era of economic bombs having tendencies to explode in virtually all sectors of the economy, the Nigerian community isn’t helping matters. Why blame Ngozi alone? I thought separation of powers exists as a fundamental blood of our so called federalism. Who is pointing fingers at the bunch of sycophants sitting at the National Assembly? I mean those Lawless Lawmakers. If Nigerian Economy collapses today, someone somewhere other than Ngozi and the executive team is also at fault. Ngozi has not been sleeping,at least, in theory. She has been all over, attending to questions regarding the economy. The Lawmakers are appearing to be more tacit. I thought somebody asserted that the Oil crisis is not just a Nigerian problem. Is Ngozi responsible for the fall in oil price? how comes nobody is asking the minister of petroleum any question? what efforts has the lawmakers attempted as its contribution to ameliorate the situation? what are the state governors doing in response to this stimuli? or are they just folding their arms and watching callously at what Ngozi will do? how prepared are Nigerians in assisting the proposed austerity policy of the government? who and who among the who is who in Nigerian economics sphere has proferred suggestive ideas? rather they await Ngozi’s downfall so as to be appointed. Amazingly, Jonathan has not made any formal address to the situation. what pains me the most is that the people we call our politicians are exchanging thunder for lightening over the validity of a Waec certificate when core issues of the economy begs for unequivocal attention. And as for the Johns of Buhari that maketh the way for the so called lord screaming change all over the place,your convoy hasn’t come up with any tangible programme addressing the current problem. They seem to be more confused than the party in power. Well, They are all confused. Whenever there is a problem in the house, the whole family comes together to solve it but in a situation where there is division in a family, I guess the result is Divided we fall. The Nigerian economy is not Ngozi’s economy, it is not P.D.P’s economy, for crying out loud, it is our economy and if Ngozi fails, the economy will fail, and if the economy fails, Nigeria will fail and if Nigeria fails, there is bound to be a revolution. Ngozi is still good as far as I can remember, but others must do something too. Caesar alone did not build Rome, Rome was built by Caesar and the Romans.