What can be made of a federal budget that hasn’t changed to fit the realities of the nation and the world at large?
Nigeria’s 2021 federal budget proposal reads like a template from yesteryears; just with different numbers. The budget does not display an understanding that the world has changed and that the nation’s problems have intensified.
The oil era is fading out, but the budget reflects an attitude of business-as usual. The budget is not situated on an over-arching economic philosophy nor development agenda. There are no big ideas on how to fix youth unemployment or prepare the nation for the already-commenced fourth industrial revolution. Given Nigeria’s realities, this (and subsequent) budgets need to be guided by big ideas based on rigorous, evidence-informed
The 2021 budget presents no overarching economic philosophy. It does not emphasise the role of the markets in addressing its economic challenges, although Nigeria postures as a capitalist economy. For instance, the ideas proposed to address the challenges in education seeks to expand the size of government.
The proposed solutions focus on building new facilities instead of discussions on how to enable the private sector to provide these services. Government’s across Africa have a poor track-record with delivering services that the market can more efficiently provide. The government should consider limiting its role to creating the enabling environment for private sector participation and also in regulating the delivery of the services to ensure the protection of the vulnerable.
While socialism has its values, capitalism won global debates. The position is that governments should never do that which the markets are better able to accomplish. It is difficult to find a critical mass of Nigerians who, from an evidence-informed position, believe that the government is more efficient and effective than the markets. The 2021 budget does not reflect an understanding of this fundamental fact.
For instance, it proposes the building of new healthcare centres, procurement and equipping of numerous primary healthcare centres. While this makes for an excellent political headline, it is not different from what the government has done for decades and delivered a substandard healthcare system. The budget does not reflect any actions to encourage private sector involvement and investments in the health sector.
Most Nigerians acknowledge that the bureaucracy is too big and unwieldy. Several policy analysts have called for a reduction in the size of the bureaucracy that consumes over 70
per cent of the national budget for recurrent expenditure. Yet, the 2021 budget seeks an expansion of the bureaucracy.
For instance, the 2021 budget proposes to establish five new Federal Science and Technology Centres. The budget does not reflect an understanding of Nigeria’s education system, what has failed, and what is needed to fix it. Building new centres when the old centres are substandard does not address the rot in the system. Throwing good money after bad ideas are part of why Nigeria is in a dilemma.
Building Without Foundations
The revenue and expenditure activities proposed by the 2021 budget do not provide any evidence of a well-considered development agenda. Indeed, the budget acknowledges that the Economic Recovery and Growth Plan (ERGP), which was the Buhari administration’s
development agenda, has expired.
As such, it is evident that the 2021 budget is not informed or guided by an overall development plan and this point may explain why the activities appear to be drawn at random; resulting in an incoherent picture.
While the 2021 budget acknowledges that Nigeria is developing a new economic plan, there is no evidence that it is guided by lessons learnt from the implementation of earlier plans. There is little evidence of an Impact Assessment on the expired ERGP or any of the previous economic plans. For instance, what did the ERGP achieve, and where did it fail? What lessons did Nigeria learn from the implementation, and how will these lessons inform the new development agenda?
It is commendable, however, to see that the current administration has prioritised the completion of the “most critical projects”. This point was repeated in a few places in the budget. Ascribing priority to a project is subjective unless guided by empirical evidence on what Nigerians agree to be critical to achieving development. As it stands today, no document outlines what growth means for the country and how to attain it.
Tokenism All the Way
The Fourth Industrial Revolution is driven by disruptive technologies that would change the way the world operates: Artificial Intelligence, big data, advances in telecommunications and computing power, the interconnectivity of things, gene sequencing, 3D printing
(and emerging variants), self-driving vehicles, continued shift to carbon neutrality (or net-zero carbon world) and so on. The 2021 budget shows no indication that the government understands that the world is going through a fundamental change. There are no big ideas that demonstrate an understanding of the challenges or opportunities. Instead, it is business as usual as if Nigeria was back in 1999. The government appears to be conducting an orchestra as the Titanic continues to take water.
The budget acknowledges the need to lift 100 million Nigerians out of poverty over the next ten years. There is no evidence that the government understands the root causes of escalating youth unemployment in Nigeria or that the programmes to address them have
been robustly debated. Although there is a myriad of poverty alleviation programmes, there is little evidence of an impact assessment to ensure that the new programme can public works projects. While there is credible evidence that public works programmes can create jobs, they do not address the fundamental reasons why Nigeria’s economy is unable to create jobs.
Governments have many credible reasons to improve domestic revenue mobilisation. This approach raises two pertinent questions. The first is the impact of the increased taxes
and revenues on the productive capacity of the economy. The second is the seeming insensitivity of a government that continues to raise taxes and tariffs on the people
without any public commitments to cut back on its fat.
The question, therefore, is at what point would the tax burden become too much that it breaks the back of the longsuffering Nigerians? What should the government do to encourage address the challenge? Without such input, the plans could be a doubling down on the same (or similar) programmes that have yielded no significant results.
Although there is a myriad of poverty alleviation programmes, there is little evidence of an impact assessment to ensure that the new programme can address the challenge.
The 2021 budget speech correctly identified that “skills’ deficits limit employment opportunities in the formal economy”. There is a mismatch in the available skills and the ones demanded by the market.
However, the proposed solution is not appropriate. There is nothing in the speech about improving the educational curriculum, teachers’ incentives, and fostering a closer relationship between the market and the centres of skills training. Instead, the budget proposes the creation of 774,000 jobs through Nigerians to continue to pay their taxes?
Security is one of the three promises of President Muhammadu Buhari’s government to Nigerians. The 2021 budget reiterated this point. It outlined how the administration has
worked to address the emergent cases of insecurity and insurgency in the Niger Delta, North Central and North West. Without questioning the government’s successes in the
regions mentioned, the budget’s silence on the war on Boko Haram is deafening.
Good Ole Fiction
The 2021 Appropriation Bill proposes to spend N13.082 trillion, with expected revenue of N7.886 trillion and a deficit of N5.196 trillion. As with the budgets over the last few years, it looks impractical and unimplementable and continues a pattern of budgeting and spending that can only ultimately end in a bankrupt federal government at best or a severe financial crisis at worst.
The major challenge, as with previous budgets, is with revenue and an overly optimistic revenue target. The 2021 budget hopes that the federal government will be able to
generate almost eight trillion naira. If history is anything to go by, this projection looks impossible. This overly optimistic position is not new in Nigeria. It is part of a continuing
pattern of false optimism that has put the federal government’s accounts in the deep red and the country in dire straits.
A review of Nigeria’s budget performance (approved revenues versus actual revenue) proves this point. In 2016, Nigeria had an approved revenue of N3.855 trillion. By the end of the year, the total retained revenue was only N2.621 trillion. This performance was a 32
per cent shortfall according to the budget implementation reports. In 2017, instead of trying to readjust to the reality of a problematic revenue situation, the Government of Nigeria repeated the same overly optimistic exercise.
The approved budget had revenue of N5 trillion, while actual revenue that year was only N2.37 trillion. This performance was 53 per cent shortfall. In 2018, the Federal Government of Nigeria repeated the same thing by submitted a budget that expected revenue to jump from N2.37 trillion to N7.165 trillion. By the end of the year, actual revenue was only N3.48 trillion; a 51 per cent shortfall. The story was the same in 2019 and 2020. In 2019 the revenue shortfall was 41 per cent, and so far in 2020, the shortfall is 38 per cent.
The projected revenue for 2021 is N7.886 trillion; however, Nigeria would be lucky to realise N3.3 trillion in revenue by the end of 2020; based on half-year numbers. The 2021 budget proposal expects revenue to increase by over 200 per cent in 2021. While this performance is not impossible, it is hardly plausible. Government revenue does not grow by that magnitude in just one year.
Rabbit in a Hat
The budget statement presents the lofty revenue projections under different headlines. This year, the hope has moved from a broad “independent revenue” to expected “surpluses from state-owned enterprises” (SOEs). The budget speech provided no clarity on how these SOEs would realise the revenues.
A stretched imagination is required to conceive how Nigeria will realise such results without any significant reform of those organisations. If the SOEs are to operate within the Nigerian economy that is currently struggling, it is unlikely that they can realistically engineer such revenue growth for the government. It is also unclear if merely plugging leakages is enough to achieve the revenue targets. The current administration promised to plug leakages; yet, after five years, there is no evidence that they have realised that much revenues.
While revenue generation is difficult, spending is easy. Even though revenue has seriously underperformed, spending has continued almost as usual. In a way, it is understandable as the government must pay salaries, fix the security challenges, and so on. Regardless, Nigeria’s spending trajectory is worrying. The over-optimism with regards to revenue has given the impression that there is money to spend when the reality is there isn’t. When the Executive announces a N13 trillion budget, the ministries and agencies take it as a signal that the largess can continue. A casual look at the Appropriation Bill contains items like SUVs for chief executives and fancy office buildings for agencies who do not need them.
All of these things will count as “capital expenditure” without adding much to the productive ability of the economy. At a time when the Executive is on the verge of a severe fiscal crisis, some of these proposed spending items are unnecessary. On this front; however, the Executive is not alone. All parts of the government, including the legislature and judiciary, are profligate without any consciousness that the country is on dire economic straits.
Disconnect from Reality
The budget betrays a lack of understanding of how modern economies function. In a country with over 30 million unemployed, employing 1,000 people per local legislature approved these record deficits under the assumption that revenue would significantly increase. The failed revenue performance means that the Executive has had to accommodate even larger deficits than approved. The budget implementation reports lists them as “net deficits” or deficits which are over and above the already record deficits that were approved. How has the Executive financed this deficit?
The relationship between the Central Bank of Nigeria (CBN) and the Executive is one that needs further scrutiny. From the CBN’s accounts, in 2019 alone, it extended over N3.5 trillion in credit via overdrafts to the Executive. For context, this was the government cannot generate the kind of jobs that the country needs. This proposal can’t be the flagship idea of a government that understands the magnitude of the problems.
This point does not negate the fact that every job helps relieve the burden on the unemployed. Resolving issues such as the border closure, dealing with the continued harassment of young people who are trying to participate in the new global economy, and improving the productivity in agriculture are much more likely to have a sustained impact and create much more jobs than tokenistic projects by a financially distressed government.
This type of behaviour accelerates Nigeria’s movement into a debt crisis, while simultaneously sacrificing macroeconomic stability; a situation which risks pulling the country down with the government.
Ominous Debt Clouds
For Nigeria, as far as the budget is concerned, the continuously expanding expenditure combined with continuously under-performing revenue will lead to only one outcome: a debt crisis. In the past few years, Nigeria has approved budgets with record deficits. The more than the approved deficit and the Executive continued to borrow from the debt markets. The CBN, in turn, has raised financing from foreign sources via its Open Market Operations (OMO) bills.
This indirect under-the-table funding of excess deficits calls into question the credibility of the Nigerian economy. It undermines the role of the Debt Management Office; whose responsibility is to ensure Nigeria does not end up in debt distress like it did in the 1990s. Nigeria has worked hard in the past two decades to improve on the macroeconomic chaos of the 1980s and 1990s. Although Nigeria still has severe economic challenges, it must ensure that an Executive seeking to address pertinent short-term objectives does not take the country back to those unfortunate days.
The 2021 Appropriation Bill submitted by the Executive continues the same pattern of behaviour. Record expenditure combined with overly optimistic revenue projections that will, no doubt, end up with significantly larger than approved deficits. This situation will lead to the further need for “creative” financing measures. This budget feels like déjàvu for the 1980s and 1990s. Nigeria has been here before and knows the pain that results from such careless economic management.
This type of behaviour accelerates Nigeria’s movement into a debt crisis, while simultaneously sacrificing macroeconomic stability; a situation which risks pulling the country down with the government. In 2019, debt servicing costs consumed 60 per cent of federal government revenue.
In the first half of 2020, debt servicing costs consumed an outstanding 95 per cent of actual revenue (according to the budget implementation reports). This situation does not include the indirect debt servicing costs that are paid by the CBN on its debt which indirectly finances the federal government via overdrafts. Indeed, Nigeria is already in a debt crisis.
Time for Big Ideas
Nigeria is almost in a perfect storm. While the economic fallout of the COVID-19 pandemic requires immediate attention, Nigeria’s other crises have not evaporated. The major challenge facing the government today is one of funding. The era of free oil income that
papered-over significant challenges in the country’s economic structure is coming to an end. The era of a government that depends on its people is here. However, people can
only fund their government if they (the people) are productive. People can only pay taxes if they make money. The government can only survive if the economy becomes more productive.
Nigeria needs big ideas to change the trajectory for the economy and her government. There are no big ideas in this budget. The budget reads like a template of old budgets
but with different numbers. Nigeria needs big ideas now if it is to have any hope of turning its economy around and building a country that improves the quality of lives of its