PRESIDENT Muhammadu Buhari presented the 2018 Budget estimates to a joint session of the Senate and the House of Representatives last week. The N8.612 trillion budget is N1.7trn or 16 percent higher than the N7.44trn appropriated in 2017. From the N8.612trn proposed expenditure for 2018, N3.494trn is for recurrent costs, while N2.652trn is earmarked for capital expenditure. Debt servicing will gulp N2.014trn, and statutory transfers, N456bn. The N2.014trn provision for debt servicing is a staggering 82.6 percent of total capital allocation and 30 percent of total revenue. The president, however, explained that the increased statutory transfers arose from higher transfers to the Niger Delta Development Commission (NDDC) and the Universal Basic Education Commission (UBEC), on account of increased oil revenue.
The proposed budget has a deficit of N2.005trn. This is a drop from the N2.36trn in the 2017 Budget. Other key assumptions of the budget include crude oil benchmark of $45 per barrel, oil production estimate of 2.3 million barrels per day (mbpd), and an exchange rate of N305/$, the same as in the 2017 Budget. A breakdown of the budget shows that the Ministry of Power, Works and Housing was allocated N555.88bn, followed by Transport and Defence, with N263bn and N145bn, respectively. Others are Agriculture and Rural Development, N118.98bn, Water Resources, N96bn, Education, N61.73bn, and Health, N71bn.
Expectedly, the President defended the assumptions and funding plan of the budget. For instance, he said the deficit will be funded partly by new borrowings estimated at N1.669trn, stating that “50 percent of this borrowing will be sourced externally, while the balance will be sourced domestically.” The balance of the deficit of N306bn, he said, would be financed from proceeds of the privatisation of some non-oil assets by the Bureau of Public Enterprises (BPE). Government will also partly fund the budget with N500bn recovered loot, according to the Chairman, Presidential Advisory Committee Against Corruption, Prof Itse Sagay, although the Minister of Finance and the Budget and National Planning Office have not confirmed this. Nonetheless, the President has assured the people that his government is closely monitoring the debt service to revenue ratio, over which many analysts have expressed deep concern.
Overall, the 2018 Appropriation is not much different from the 2017 Budget. However, the decision to ban fresh recruitment by Federal Government Ministries, Departments and Agencies (MDAs), except with presidential approval, should help to check rising personnel costs that are becoming uncontrollable.
On paper, the restoration of the January-December budget cycle is good, if the presidency and the legislature can work in harmony. It will be good for planning purposes, both in the public and private sectors of the economy. In that respect, the National Assembly should be less combative and ensure a speedy consideration and passage of the Appropriation Bill. This is necessary to normalise the budgetary cycle. Besides, it will enhance predictability and the confidence of investors in our economic management process.
The government’s effort to rebalance the debt portfolio in the light of its increasing debt servicing obligations and the crowding-out effect of its domestic borrowing on the private sector is a welcome development. But, we urge a considerable level of implementation of the 2018 budget as soon as it is passed by the National Assembly and assented to by the President. Previous budgets suffered from selective implementation. This is not good for economic development. The President has admitted that the 2017 budget will only reach 50 percent implementation by next month, due to the delay in the release of funds and the late passage of last year’s budget. The 2018 Budget should not suffer the same fate. The outlook of the macro-economic fundamentals is positive. With external reserves at $34bn last month (October), inflation on the decline for eight consecutive months, and the stability of the exchange rate, government should strive to build on this positive outlook.
However, the amount voted for debt servicing does not look sustainable, just as the exchange rate assumption of N305/$, appears unrealistic, because the going exchange rate at the moment is between N350 and N365/$. Altogether, for the budget to have a good chance of achieving its broad objectives, early passage, speedy release of funds and a strong commitment to its full implementation are required. In addition, it is necessary to reduce the cost of governance, especially the emoluments of political office holders, as well as scale up remittance of surpluses from the MDAs to the government treasury. Government should also refocus its tax drive from direct to indirect taxes in line with the National Tax Policy, and curb the imposition of a multiplicity of taxes and levies on businesses by all levels of government.
With the Ministry of Power, Works and Housing getting the lion’s share of the budget, Nigerians expect to see considerable infrastructural development, with focus on roads, railways, power and water projects, the much-anticipated second Niger Bridge and the Lagos-Ibadan standard gauge rail line to the Apapa and Tin-Can Island Ports, which handle over 70 percent of export/ import cargoes in the country.
With the 2019 elections beckoning, the implementation of the 2018 Budget is a defining one for the Buhari administration. Its prompt passage and effective implementation will help to boost the confidence of investors in the economy and in Buhari’s presidency.