The Explainer: Understanding the numbers, ambitions and apathies of the 2018 Consolidation Budget

by Alexander O. Onukwue

 

The Appropriation Bill for the 2018 fiscal year was presented by President Muhammadu Buhari to a joint session of the Senate and the House of Representatives on Tuesday.

Termed the “Budget of Consolidation”, the calculations of the Executive is that the Federal Government will collect revenue of N6.607 trillion and spend a record N8.61 trillion.

Those are the basics of the 2018 Budget. Not much can be known of the specifics until full details of line items become public knowledge. But while we look forward to scraps about allocations for the Aso Rock clinic and the cost of sewage, the bulk numbers from President Buhari’s presentation on Tuesday tell a few stories of their own:

THE OIL BENCHMARK: $45

Alarm bells are ringing globally on the decline of oil as increasing number of nations ramp up investments in renewable energy. But the projection for oil seems positive enough to encourage the addition of 50 cents to the benchmark used for the 2017 budget.

With oil trading as high as $64 on Tuesday, it represents good news for the Government in coming close to achieving its proposed oil revenue aims, all other factors (notably of peace in the Niger Delta) being equal. The recovering oil price will delight the President who, last week, promised his party members an expanded Federal Executive Council to accommodate supporters largely because the country could now afford it. ‘Diversification’ is the buzzword for the shift from over-dependence on oil, but the international value of our black gold remains key to local economics and geopolitics. Oil revenues for 2018 are projected to be N2.442 trillion while non-oil sources are expected to bring in 4.165 trillion.

 

EXPENDITURE: 15.7% UPGRADE FROM 2017

The Consolidation tag of the 2018 Budget is supposed to build on “Recovery and Growth” from the 2017 budget by spending N8.61 trillion. By the President’s account, implementation of the N7.44 trillion approved last June is still low, with hopes of achieving 50% release of capital votes to MDAs by the end of this year. The new expenditure proposal of the Executive takes into consideration forecasts of 3.5% GDP growth, based on the International Monetary Fund’s favourable prediction for emerging markets and developing economies, as well as the projected drop in the inflation rate to 12.4%. Nigeria’s recovery from recession in Q2 2017 was based on a 0.55 appreciation in GDP.

One question on expenditure is the rise in recurrent costs to N3.494 trillion. The President pointed to increases to the votes for salaries to “crucial public service” Ministries of Interior, Education, Defence and Health, as well as allocations for recruitments in the nation’s Military and Para-Military forces and corps. For all of Government’s cost control measures since 2015, including cuts in souvenirs, local and overseas trainings for staff of many Ministries, the overhead budget is increased by N26 billion. Again, the increase could be the making of space for the new “supporters” to be added to the expanded FEC, according to Buhari’s promise to the APC at its congress.

 

OPERATION COLLECT MORE REVENUES: 30%

The 2018 Budget’s revenue ambition of N6.697 trillion is a 30% update from the N5.084 trillion estimated for 2017. The second quarter/half year report from the Budget Office of the Federation already shows short-falls in reaching 2017’s target.  State Owned Enterprises which, according to Saraki’s speech, can generate about N40 trillion are not doing nearly enough to turn in the greater percentage of earnings they generate. Buhari referenced this by citing JAMB’s 2017 remission of N7.8 billion, against the aggregate of N51 million from the past decade.

The President also made mention of Nigeria’s low Tax-to-GDP ratio of about 6% being “one of the lowest in the world”. In light of this, it appears the Government will be looking at means of vastly improving its collection mechanisms at all levels. The Voluntary Assets and Income Declaration Scheme (VAIDS) launched in July was a step to this; similar and perhaps not-so-voluntary platforms could be introduced in the New Year.

 

IT’S A DEFICIT, BUT THERE WILL BE SALES

With projections of revenue and expenditure at N8.61 trillion and N6.697 trillion, the budget deficit is N2.005 trillion. How will this part of the budget not covered by revenue be financed? “We plan to finance the deficit partly by new borrowings estimated at 1.699 trillion naira,” Buhari said. “50% of this borrowing will be sourced externally, whilst the balance will be sourced domestically. The balance of the deficit of 306 billion Naira is to be financed from proceeds of privatisation of some non-oil assets by the Bureau of Public Enterprises (BPE)”.

The 2018 Budget proposes N2.04 trillion for debt financing, but as it is normal in Government, the payment of one debt does not forbid or prevent further borrowing if the National Assembly approves. The other matter of the sales of some assets will require citizens to keep their ears open and watch who the new buyers will be.

 

CAPITAL EXPENDITURE: STEADY AT 30.8%

In keeping with its policy from the 2016 budget, 30% of the 2018 Budget will be devoted to capital projects. According to the President, “this Administration was able to invest an unprecedented sum of over 1.2 trillion Naira in capital projects through the 2016 Budget.” calling it “the highest ever in the history of this country.” Some main points of the 2018 capital expenditure proposal of N2.428 trillion include:

  • 57% increase in Ministry of Niger Delta capital project allocation, from N34.20 billion to N53.89 billion
  • Power Works and Housing to receive N555.88 billion, the highest of any Ministry
  • Niger Delta Development Commission to receive N71.20 billion while the North East Intervention Fund proposed to be N45 billion.

 

SUSTAINED RELUCTANCE TO INVEST IN EDUCATION

In terms of recurrent expenditure, i.e. for the payment of salaries and overheads, the Executive proposes that the Ministry of Education receive an allocation of N435 billion. This is about N76 billion less than the estimate for Interior but more than the figures penned for Defence (N422.43 billion) and Health (N269.34 billion). However, with proposed capital spending allocation N61.73 billion, the Ministry is only better than the Niger Delta and FCT Ministries.

The gross allocation for education is still about the same 6% of the total budget it was in the 2017 budget; that figure was the lowest in three years and far below percentages in West Africa. Nigeria’s 6% education allocation remains behind those of Liberia (12.1%), Cape Verde (13.8%) and Benin Republic (15.5%). Ghana, which has become one of the top three destinations of Nigerians going to foreign Universities, allocated 23.1% last year, much closer to the UNESCO prescribed standard of 26%.

SPECIAL PROJECTS TO LOOK FORWARD TO

The President’s Budget speech mentioned the completion of over 766km of roads, the upgrade of power generation capacity to 7000MW and the creation of a 30 billion solid minerals fund. Some projects expected to feature in the 2018 budget include:

  • 8 billion for the Mambilla hydropower project, including N8.5 billion as counterpart funding
  • N12 billion counterpart funding for earmarked transmission lines and substations
  • 41 billion for the National Housing Programme
  • N10 billion for the 2nd Niger Bridge
  • N300 billion for construction and rehabilitation of strategic roads
  • N100 billion Social Housing Programme
  • Retained in the 2018 budget is the N65 billion for the Presidential Amnesty Programme.

After performing his Constitutional duties of presenting the Budget to the National Assembly, President Buhari is hoping the legislature will “perform its important duty of passing the Appropriation Bill into law, hopefully by the 1st of January, 2018”. That would give the lawmakers 55 days to push through the N8.61 trillion spending plan as law.

Regularising the fiscal year to run from January to December is desirable. This will not stop Nigerians from being even more insistent on having as much scrutiny as possible on Buhari’s proposed fiscal plan. The line items, when released, will give a clearer idea what the material means of consolidation are. The Budget presented by Buhari is the last before the main hostilities of the 2019 elections, including choosing party’s candidates, begin next year; there will be questions.

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