YNaija Editorial: Will the 2016 budget deliver as promised?

After a much-criticized lethargic start to his government, President Muhammadu Buhari has finally set the ball rolling since the swearing-in of his cabinet.

About three weeks ago, the Federal Government submitted the 2016-2017 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP), the two documents on which yearly budgets are planned, albeit in contravention of the Fiscal Responsibility Act (FRA) that stipulates the documents be submitted to the National Assembly three months before the budget proposal is submitted.

What is most noticeable about the MTEF is the jump in total sum in the budget from N4.5 trillion in 2015 to N6.077 trillion, especially juxtaposed against declining price in crude oil in 2015, which has caused government revenues plunging and putting many states on the brink of bankruptcy which required a bailout to help restructure their debts and give them the financial helpline to pay backlog of salaries and pensions.

It is obvious that the FG is not oblivious of the fact that not only is the price of crude oil low (currently at $38 per barrel), but it is unlikely to reach the heights of $100 per barrel averagely for four years until late 2014.

It is based on this that it has set the benchmark price for the budget at $35, and hopefully, the Senate will not increase it. A low benchmark price gives the Federal Government the clarity to diversify revenue streams from oil.

The question now is: can the Federal Government meet its targets for revenues from non-oil sources such as taxation and customs duties?

It is proposing that by closing loopholes, as much as N2.4 trillion will be realized in 2016 from non-oil taxes and customs duties, up from N2trillion budgeted in 2015 and N1.3 trillion actually realized by September 2015. With the start of the implementation of the Treasury Single Account (TSA), we can be cautiously optimistic that this goal is not out of reach.

But beyond the revenue side, the expenditure side also contains quite a number of promises: the reduction of recurrent spending to 70% from 84% while capital expenditure increases to 30% from 14% in the previous year, although details on how this will be achieved are still scanty.

The Federal Government is also making good its election promise of social welfare spending schemes like the school feeding program, conditional cash transfer schemes to the most vulnerable and grants for post-NYSC graduates to go into entrepreneurship.

However, the government is still silent on the issue of fuel subsidies, which has become the proverbial elephant in the room.

Although it has budgeted N63bn for fuel subsidies, it is evident that it is far below what will be required – the sum of N522 billion was approved early this month to pay fuel subsidy arrears for the last quarter of 2015 alone.

Many experts have opined that removing the subsidy of fuel makes excellent economic sense and this newspaper is inclined to agree with them for the following reasons: not only is it a drain on our scarce finances, research has shown that fuel is sold at the official price in very few parts of the country.

Not only that, the current low price of crude oil has reduced the price that consumers will pay at the pump and fears that the price of fuel will skyrocket and cause a domino effect in the prices of goods and services are formed on paranoia.

Lastly, the unclear policy on fuel subsidy makes importers of petroleum products and the banks that finance them uncertain of whether and when the government will pay their subsidy claims.

While the Federal Government intends to finance the deficit in the proposed budget by issuing bonds, it is important to cut away recurrent spending that is more a drain than beneficial, such as the fuel subsidy.

It is good to know that the Federal Government has stated that its spending will be built around six core areas: Economic, social development, infrastructure, governance, environment, state and regional development. This will enable the government to move together in one step-motion towards a common goal.

Even without a detailed breakdown, it can be said that the budget proposal for the year 2016 is a good one. It now remains to be seen if it will achieve the desired effect.

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