Pitfalls in Budget 2016

Last Tuesday, President Muhammadu Buhari presented the Federal Government’s budget estimates for the year 2016 to a joint sitting of the National Assembly’s two chambers. As earlier announced, the Federal Government intends to spend N6.08 trillion next year. This figure is nearly 30% higher than the 2015 Federal budget of N4.4 trillion. This was a […]

Last Tuesday, President Muhammadu Buhari presented the Federal Government’s budget estimates for the year 2016 to a joint sitting of the National Assembly’s two chambers. As earlier announced, the Federal Government intends to spend N6.08 trillion next year. This figure is nearly 30% higher than the 2015 Federal budget of N4.4 trillion. This was a surprise because the price of crude oil, which for several decades has been the main source of revenue for all three tiers of government in this country, nosedived this year to about $31 per barrel from a height of $120 a barrel not too long ago.
The Federal Government expects to earn N3.8 trillion next year with only N800 billion from oil sources, another N1.8 trillion from non-oil sources and with a budget deficit of N2.2 trillion. To make up for this, it will borrow N1.84 trillion from domestic and foreign lenders. This high level of borrowing worries many Nigerians because in years past, governments have not properly utilized borrowed funds. Buhari however said this “commits significant resources to critical sectors such as Works, Power and Housing N433.4 billion; Transport N202 billion; Special Intervention Programs N200 billion; Defence N134.6 billion and Interior N53.1 billion. These investments in infrastructure and security are meant to support our reforms in the agriculture, solid minerals and other core job creating sectors of our economy.”
The borrowing may turn out to be even higher than that because oil prices are still falling, with the International Monetary Fund [IMF] saying they could fall to $20 a barrel soon, far below the $38 per barrel budget benchmark for 2016. The 2.2 million barrels daily oil production target is also ambitious and will require much improvement in security to stem the tide of oil theft.
The president said this budget is designed to revive the economy by increasing the capital budget from N557 billion this year to N1.8 trillion next year. Experts and citizens alike have complained over the years that a developing economy such as ours requires a much higher ratio of capital to recurrent spending. The proposed increase in the capital budget is therefore a welcome relief. Yet, experience over the years has shown that capital spending takes a long time to plan and execute and with the budget already late, more effort is needed to ensure that we do not continue to have low budget performance as in previous years. Besides, the Federal Government did not spend this year’s capital vote. A National Assembly ad hoc committee found that Federal Government’s capital spending for this year was 0% as at end of September.
One of the biggest puzzles of the 2016 Federal budget as presented by Buhari was the fate of fuel subsidies. Minister of State for Petroleum Ibe Kachikwu recently disclosed that government spent N1 trillion on fuel subsidies this year even when chronic fuel shortages ensured that only a small proportion of Nigerians ever bought fuel at N87 per litre. Buhari has apologized for the fuel shortages and he said petrol will remain at N87 per litre “for now.” The statement is ironic because there is hardly any petrol to be bought at that price.
Kachikwu then compounded matters by saying in Port Harcourt on Friday that petrol prices will drop by two naira from January 1. He said he had approved a new calculation based on price modulation which put the price at N85. Kachikwu also said government has now done away with fuel subsidies. This position is very confusing. If the government has done away with subsidies, why is it fixing a new, lower fuel price? What happens if marketers refuse to import and supply fuel at that price? It means the long queues of recent weeks could continue into the New Year. The government should summon courage and deregulate fuel prices once and for all, as all experts have advised.
The phenomenal increase in the Federal budget with very high borrowing is meant to finance a raft of social welfare projects in President Buhari’s first budget. These include the hiring of half a million primary school teachers from the pool of unemployed graduates; a program to supply food and milk to pupils in public schools in order to ensure pupil retention; and a N500 billion conditional cash transfer scheme for the poorest and most vulnerable persons. This target group is not yet well defined and from what we know of the quality of official statistics, it will be a big challenge to compile all the eligible persons’ names.
Also problematic is the hiring of teachers and school feeding. Buhari said both programs will be worked out in collaboration with state and local governments. Insofar as the Federal Government has no primary schools, the other two tiers of government have a bigger role to play in both projects. At a time when state governments are trying to either reduce the minimum wage or retrench their workers, it may not be possible to convince them to hire new teachers unless the Federal Government will foot the entire bill. 
The president also spoke about a program, also in partnership with state and local governments, to provide financial training and loans to market women, traders and artisans through their cooperative societies. He said, “This segment of our society is not only critical to our plan to grow small businesses, but it is also an important platform to create jobs and provide opportunities for entrepreneurs.” At least this program is less problematic than the others and there is no doubt that, if it is well handled, it will provide a big boost to economic activity in this country.
Even as we urge the National Assembly to speed up the process of approving the 2016 budget, we urge the Presidency to take due cognisance of these pitfalls in its budget plans and to work hard and with speed to dispel our fears.