Issue Brief: Analysis of the 2017 budget/Budget Pull Out
1.1 Introduction
Budget for recovery and growth is the theme given to the Nigerian 2017 budget which was presented to the National Assembly by the President of the Federal republic of Nigeria, President Mohammadu Buhari on the 14th of December 2017. According to him the budget was predicated on the plans by the federal government to move the country out of recession. The allocation of the budget is established to be N 7.29 trillion based on a benchmark of $42.5 per barrel of crude oil sales with an expected crude oil production of 2.2milliom barrels per day and an exchange rate of about N302 to a dollar. Compared to the 2016 budget which stood at N6.03 trillion making the 2017 national budget 20.4% higher than the former.
According to the federal government, as part of getting the country out of recession, the budget was going to focus on very critical sector of the economy. Speaking at the National Assembly during the budget presentation, President Mohammadu Buhari said ‘We will prioritise investments in human capital development especially in education and health, as well as wider social inclusion through job creation, public works and social investments.’
However, the 2017 budget of recovery and growth revealed huge allocations to works, transport and defense. Works, housing and power got N529 billion, this amounts to about 23.63% of the total capital budget as against the sum of N433.4 billion in the 2016 budget. Followed by transportation which got a total allocation of N262 billion also being about 11.70 % of the total capital budget, as against the sum of N202 billion in the 2016 national budget. In the same vein, defense got a total capital allocation of N140 billion being about 6.23% of the total capital allocation as against the sum of about N135 billion in the 2016 budget.
Meanwhile, the existent realities in the country, presents a daunting challenge to the federal government and puts the budget in position of obvious skepticism. These realities may include
‘ Rising inflation rate which is at 18.72% as at January 2017 but was 18.5% as at November 2016.
‘ Poor and dwindling expectation of the Naira in comparison with other currencies especially at the parallel markets. currently at N502 to a Dollar
‘ High rate of unemployment, which is at 13.9% as the third quarter of 2016 meaning, that about 11.2 million youth are unemployed. The highest since 2009.
‘ Uncertainty and inconsistency of crude oil prices at the international market. Although may improve due to cuts by some countries as demanded by OPEC.
‘ Production of crude oil barrel per day below expectation, making the 2.2 million barrels per day unrealistic based on Niger delta crisis.
2.1 Funding of the 2017 Budget
Reflections from the budget show conspicuously that 2/3 of the proposed budget will be funded by borrowing from external and internal sources; while about 67% percentage of the budget will be funded by government revenue basically from oil and n on oil sources. Therefore, the sum of about N2.33 trillion will be borrowed to finance the budget of about N7.29 trillion. From sources, about N1.25 trillion will be sourced internally while about N1.067trillion will be sourced externally. A total of about N10 trillion was target by the federal government to be raked in as revenue, for the 2017 fiscal year and out of which N5 trillion is expected to come from sales of crude oil and non-oil revenues will also rake in N5 trillion. The non-oil revenues may include sources like taxes (corporate and company), liquefied natural gas (LNG), customs and excise duties, government independent revenue, charges on special levies.
Specifically speaking, about 30 billion is expected from the federal government shares of dividends payments from the Nigerian LNG, N808 billion from company taxes, N242 billion from value added tax, N1billion from mineral and manning and then N565 billion from fines and recoveries. Other non-oil revenues will include N278 billion from custom duties, N808 billion from independent revenue sources, N46 billion from federation account levies, N7 billion from share of actual balance in special accounts, N9 billion from share of balance in special levies account, N50 billion from unspent balance of the last fiscal year and N14 billion from share of fiscal bonus.
However, concerns have been raised on the issues of the proposed borrowing by the federal government to fund some part of the budget. According to them, they are proposing to borrow $30 billion dollars which is about N2.32 trillion to partly fund the budget deficit of about N2.36 trillion which also translated to be 2.18% of the GDP. In essence, N1.067 trillion is to be sourced externally, while about N 1.25 trillion is to be sourced domestically.
If this proposal which was intended to spread between 2016-2018 is approved, the federal government will have to spend about $10 billion dollars yearly. This may ultimately increase the debt profile of the country and subsequently choke the financing of very critical infrastructures due to the servicing of these debts if there are any underperformances on expected revenue.
3.1 Government intended expenditure in 2017
The federal government proposed to spend monies in the following areas
‘ N2.98 trillion on Recurrent non-debt expenditure being 40.83% of the total budget
‘ N419.02 billion on Statutory transfers being 5.74% of the total budget
‘ N1.65 trillion on Debt servicing being 22.75% of the total budget
‘ N177.6 billion for Sinking funds to retire certain maturing bonds being 2.43% of the total budget.
‘ N2.24 trillion for Capital expenditures being about 30.69% of the total budget sum.
Moreover, a breakdown of the recurrent expenditures shows that a very significant chunk of the money has been provisioned for salaries and overheads of major government institutions which go thus.
‘ Ministry of Education having an allocation of N398.01 billion
‘ Ministry of Defense N325.87 billion
‘ Ministry of Interior N482.37 billion
‘ Ministry of Health N252.87 billion.
Meanwhile breakdown of the Capital expenditure reveals that more spending has been allocated for Power, Works and Housing, Transportation, Special intervention programme and Defense among others; gulping about 23.26%, 11.70% , 6.70% and 6.25% respectively of the total capital expenditure
The federal government has tried to justify these spending by stating through the Minister of Budget and Planning that the spending will help to encourage and attract the private sector capital and its spending. The president in his presentation in the National Assembly has stated earlier by saying ‘we will prioritise investment in human capital development especially in education and health, as well as wider social inclusion through job creation, public works and social investment.’
4.1 Imaging the critical sectors
From the foregoing, analyzing the 2017 National budget proposed by the federal government of Nigeria and allocation to 4 critical sectors namely agriculture, education, health and infrastructure will show thus.
4.2 Health
The federal government in the 2017 budget allocated about N51 billion as its capital allocation with a recurrent allocation of about N303.87 billion being just 4.16% of the total allocation in the 2017 budget. In terms of the total capital expenditure, health is having given a paltry sum of 2.5% of the total capital expenditure. Out of this amount, only 17% of the total health sectorial allocation is for capital projects while 83% of the sectorial allocation goes to recurrent expenditure. Specifically speaking about N304, 190,961,403 if going to the health sector from the federal government, capital expenditure in the sector takes N51,315, 564, 740. the headquarters of the ministry takes about 50% of the sum above leaving about N25,891,925,657. This is not coherent with the intension promised by the federal government. Who have also said that government will continue to ensure that the great number of Nigerians will have access to basic and qualitative health care services in the country and that the provisions of quality health care will reverse the pitiable health indices in Nigeria.
Nigeria was a major signatory and infact the host of the meeting where the Abuja declaration was decided in 2001. According to the declaration, members’ countries of the African Union decided to join their counterparts in others continents in providing qualitative healthcare to their citizens by agreeing to devote about 15% of their yearly budget to achieving this. Nigeria is yet to honor this agreement. This is also far from meeting the recommendation made by WHO that for Nigeria to be viewed as truly prioritizing healthcare for her citizens, she has to devout about 13% of her budget to healthcare especially in developing countries.
The federal government seems not to be agreeing with the very poor health indices that Nigerian is known for. According to the recent health report released by WHO in 2016. Nigeria’s life expectancy at birth and healthy life expectancy at birth still stands at 54.5 below countries like Sao Tome and Principe which stands at 67.5, Senegal at 66.7 and Rwanda at 66.1. Out of 83 countries Nigeria sits at the bottom for coverage of intervention give to reproductive, maternal, newborn and child health.
In analyzing this further, it means that since the federal government of Nigeria budgeted about N303 billion for about 180 million Nigerians for healthcare in 2017, each Nigerian will get about N1,500 (one thousand five hundred naira only for a year). This is very pitiable and unrealistic because it cannot create any iota of impact on the health of the Nigerian masses. This suggests why the country still grapples with poor health indices. This figures places Nigeria as one of the countries with very poor spending per citizen, in comparison with very many African countries that may not be as rich as we do.
4.3 Agriculture.
Agriculture remains the priority of the federal government in this year’s budget of recovery and growth. It is in reaction to the plan to diversify the country’s source of revenue. The allocation for the agricultural sector reveals that it is the highest so far in the history of the country. This somehow reflects government sincerity in improving other source of revenue generation for the country. This move is also expected to boost the productivity in that sector by increasing the allocation or funding, incentives and single digits’ interest rate under the umbrella of the agriculture commercial credit scheme and the Anchor borrowers funding programme.
According to the president, during the presentation of the budget, ‘this sum will complement the existing effort of the Federal Ministry of Agriculture and CBN to boost agricultural productivity through investment funding at single digit interest rate under the Anchor borrowing programme, commercial agricultural credit scheme and the Nigerian Incentive based Risk Sharing System for agricultural lending’. The president also said that the agriculture policy will focus on the integrated development of the agricultural sector, by facilitating access to inputs improving market accesses, providing equipment, storage as well as supporting the development of commodity exchange.
Analyzing the budget allocated to the agriculture shows that about the sum of N92 billion was allocated to the sector. This is quite high, compared to that of the 2016 national budget which was about N76 billion, this is about xxxxxxx%. Although some observers have said that in aggregate there seems to be an increase, but the rate of increase has significantly reduced over the years. The allocation being just about 1.49% of the total budget, stand contrary to the AU Maputo declaration of 2001 which set a benchmark of about 10% of the member country’s national budget that should be devoted to the agricultural sector. The Maputo deceleration was in response to the stagnation of Africa’s agriculture and as food insecurity threatens.
Some concerns have however been raised, based on this development and the fact that the Federal Ministry of Agriculture and Rural Development (FMARD) get about 62 % of the total allocation given to the sector while the remaining 38 % goes to the MDAs that has more impact on the agricultural economy of the country. The FMARD is charged with the responsibility of supervising and regulating over 41 MDAs and as such their activities may not significantly impact on the commodity value chain and other agricultural activities that have very significant impression on the agricultural sector such as the research institutes and other MDAs would. It is however considered that the reverse should be the case where more allocation will be given to the MDAs who have the capacity to impact and deliver more agricultural gains in the country.
4.4 Education
From the total budget of about N 7.2 trillion the sum of N N540 billion has been allocated to the educational sector. The federal ministry is expected to utilize about N398.01 billion for recurrent expenditure, while N92 billion for Universal Basic education (UBEC) and 50 billion for education are for capital expenditure. This could be described as an improvement when compared to that of the previous year that stood at the sum of N369.6 billion from a budget of N6.07 trillion. However, this is grossly inadequate, if the realities of the sustainable development goals SDGs are to be considered. From this amount, the Federal Ministry of Education is expected to fund about 36 federal universities, 25 Federal Polytechnics, 22 Federal collages of education and 104 federal unity schools.
Report has it that out of the total Out of School Children (OSC) in the world, Nigeria contributes about 47% to this data. According to UNESCO, Nigeria has about 10,5 million children that are out of school, the largest number anywhere in the world. it is also reported that 45% of children ages 6-11 does not attend school with the northern region recording the lowest rate of school attendance. In one of the reports released by UNICEF, it stated that over the last decade, the exponential growth in population experienced by Nigeria is putting immense pressure on the country’s resources, overstretched public services and infrastructure. Therefore, the burden on the educational sector is becoming overwhelming; with children of 15 years and above make up about 45% of the country’s population.
In the same vein, one major problem bedeviling the educational sector in the country is the money being owed most stakeholders which has been responsible for the incessant industrial strives especially between the Academic Staff Union of Universities and the federal government. Information from ASUU has it that they are being owed about N24 billion earned allowance from 2013 to 2016 and N495 billion accumulated arrears. If both amount are summed together a total sum of N619 billion is being expected from the federal government a sum higher than budget currently allocated to the education sector.
5.0 State Budget
5.1 Kaduna state
The Kaduna state house of assembly was the first to have passed into law the state budget for 2017 among the 36 states of the federation. The sum of about N214 billion was approved to be spent in the year 2017. Out of this amount N83.46 billion was for recurrent expenditure while 131.45 is for capital expenditure. The governor at the presentation of the budget indicated that the budget was intended to be pro poor putting the needs of the people first. According to him the state government was intending to embark on developmental projects such as the Zaria water project, complete the refitting of primary health care centers and hospital, rehabilitation and equipping of schools, creation of agro allied industrial zone that will create jobs and enhance the investment capacity of the state.
Other projects to be delivered through the budget according to the state government includes the rebuilding and maintenance of township roads, the kicking off of the first phase of the state transit scheme and then the implementation of the emergency nutrition programme intended to reduce malnutrition amongst the poor citizens of the state.
To deliver all these projects, the government proposed the spending of about N10.49 billion on health, N25.54 billion on infrastructural development, N8.1 billion on water, agriculture which an area where they have comparative advantage will get 4.58 billion and then 44.84billion will be spent on education. From the foregoing, it is obvious that the priority of the state government in the year 2017 is to fix the education sector and infrastructure as it gets about = and == of the total budget respectively.
Meanwhile during the presentation, the governor revealed that the state government was going to put forward a supplementary budget to reflect the Paris Club refund that was received from the federal government.
According to him, ‘We propose to apply 50% of the funds to settling the inherited arrears of gratuity and death benefits for state and local government workers. Some of these unpaid arrears date from as far back as 2010. Mr. Dan Ndackson, the Executive Secretary of the Bureau of Pension, has done a great job of sorting out these records and we will be ready to pay once the supplementary budget is passed. ‘This is unprecedented, but we are happy to clear the problems created by those before us. The balance of the funds will be dedicated to rural and urban roads,’
As agriculture is the main stay of Kaduna state others sources of revenue may include FAAC annual allocations from oil revenue, revenue from Value Added Tax (VAT), internally generated Revenue (IGR) capital asset loans), However, the state is targeting an increase in the internally generated revenue. According to the chairman of the state’s internal revenue service, Kaduna state had generated about N17 billion as internally generated revenue (IGR) in 2016 which is about 50% higher than that of the previous years of 11.5 billion. The state is now targeting the sum of about N50.2 billion specifically 1.4 billion monthly in 2017 with an oil benchmark of $39 per barrel.
5.2 Enugu state
Enugu state is in the South East geo-political zone of the country. Enugu state is one of very densely populated cities in the country. She has an estimated population of over 3.2 million people and ranked 23rd in the country. The budget of Enugu state like the National budget has been tagged the budget of Economy Recovery and inclusive development. The budget has been estimated to be N105 billion. The budget is about 24% higher than the budget estimate of the year 2016, which stood at N85, 179,449,000. The governor at the presentation of the state’s budget has said that the budget was prepared to meet the yearnings and aspiration of the people. Address the needs of the common man. The top priority of the government is to diversify the state’s economy by encouraging private sector participation and public-private partnerships to deliver an all-inclusive development.
The budget estimate of the state revealed that recurrent expenditure will gulp about N55 billion representing 52% of the total budget estimate while the Capital expenditure will gulp about N50 billion also representing 48% of the total budget estimate. The basic revenue sources of Enugu state are from Federal allocation, internally generated revenue (IGR) and valued added tax (VAT).
The state internal revenue board had identified that there is a decline in the revenue generation in the state. They blamed this development on poor administrations and lack accountability. Consequently, this significantly impeded the implementation of previous budget estimates. In view of these the state officially commenced an aggressive recovery of taxes. She commenced by sealing off the premises of several banks in the state for refusal to remit monies collected on the behalf of the state. The banks owed the sun of N1billion as monies not remitted to the coffers of the state government.
5.3 Anambra state
The 2017 budget for Anambra state was passed into law after its presentation by the state governor to the state assembly. Just as the neighboring Enugu state, the state budget estimate was tagged budget of economic recovery and inclusive growth. The budget estimate proposed by the government is of the sum of N115.5 billion. Of the estimated amount N56.6 billion is for recurrent expenditure being 49% of the total budget estimate while N58.9 billion is for capital expenditure being 51% of the total budget estimate. The budget is 11% higher than that of the previous year 2016 which stood at 101.4billion. The budget estimate was predicated on $42 per barrel of crude oil sales and an exchange rate of N 305 PER dollar.
The major source of revenue for the state is from allocation from the federal government (FAAC), internally generated revenues (IGR) and grants from development partners. According to the projections made by the state government about N20.4 billion is expected to come from IGR and about N40.2 billion is expected to come from federal allocation, as well as 12 billion is expected from development partners as counterpart funding. Reports indicate that about N1.4billion is realized as IGR monthly and it was expected to hit 2.2billion in the last quarter of 2016. According to this report about 2.2billion is paid in by businesses in the state.
The governor said at the presentation that the budget estimate was geared towards increasing the growth of the economy and empowering the people of the state in this season of recession. This is meant to reflect in the proposed expenditure for the 2017 fiscal year. The state government indicated that N17.7billion would be spent on salaries and salaries, 10.2 billion would be spent on pension and gratuity of retires and then 18.4 billion will be spent on overheads.
Furthermore, the state government also indicated that about 61 major market will receive a boost of about N610 million to enable traders operate in a healthy and friendly environment.
6.0 THE 2016 BUDGET AND LESSONS LEARNT
The 2016 budget was the first budget prepared by the President Muhammadu Buhari administration who was sworn in as President on 29th May, 2015. The budget was approved by the National Assembly in May, 2016. The Centre for Social Justice (CSJ) has been analyzing the Federal Budget for more than a decade. It has been documented that between 2013 and 2015, the FGN consistently ran budget deficits and most of the funds were used for recurrent consumption expenditure. The 2016 budget project to have crude oil production of 2.2 million barrels per day; deficit of N2.2 trillion, benchmark oil price of $38 per barrel and average exchange rate of N197 to US $. Some scholars have consistently argued that some of the assumptions of the budget especially the projected crude oil production and exchange rate are not in agreement with the economic realities of the country.
Agriculture as a great contributor to GDP and employment creation was regarded as one of the key drivers of the Nigerian economy but only 1.25 percent of the budget was allocated to Agriculture in 2016. Similarly, the environment was recognized as one of the key drivers of the economy. But the environment is facing a lot of challenges including oil spillage, erosion, desertification and shrinking lake Chad. But the 2016 budget allocated only 0.32 percent to Agriculture. Over the years, Nigerians have complained about the falling standard of education. But the Federal government allocated 8.77 %; 10.55 %; 10.75 % and 7.92 % of its overall budget to the education sector in the years 2013; 2014; 2015 and 2016.
It has been recognized that there is a huge infrastructure gap in the country. Nigeria is estimated to need between 17million to 23 million new housing units to meet its housing deficit. But the FGN budgeted 0.65 %; 0.46 %; 0.16%; and 1.13 % of its overall budget for housing in the years 2013, 2014, 2015 and 2016 respectively. Nigeria has a total road network of 194, 200 kilometers, comprising 34, 123 km of federal roads (17 percent); 30,500 km of state roads (16 %) and 129, 577 km of local government roads (67 %). According to the National Integrated Infrastructure Master Plan (NIIMP), Nigeria needs an investment of $22 billion over the first five years and then an additional $4 billion in urban road which requires a provision of $5.2 billion per year. Meanwhile, only about 65,000 km have been paved throughout the country. But the FGN allocated 3.83 %, 2.85 %, 1.00% and 4.84 % of its overall budget to the works sector in the years 2013, 2014, 2015 and 2016 respectively.
7.0 LESSONS LEARNT FROM THE 2016 BUDGET IMPLEMENTATION
There are a lot of lessons learnt from the 2016 Budget implementation. First and foremost, the engagement by citizens and citizens’ groups produced some positive reports in terms of reduction of frivolous expenditure. For instance, CSJ documented a total saving of N71,954,532,546.00 from the 2016 budget. Secondly, the budget was passed very late and will definitely affect the performance of the budget. Thirdly, there was low capacity in understanding the new budgetary approach of zero base budgeting on the part of public servants and civil society. In addition, the level of citizens’ engagement especially at subnational levels was low and there was no structured process for citizens’ engagement. Moreover, Civil Society strategies of advocacy, partnership and networking, tracking and monitoring, participation in public hearing and social media can make some difference in the budgetary process. For instance, engagement by civil society has led to some improvement in the openness of National Assembly budget. It is now itemized instead of the block budget without breakdown and the National Assembly held a consultative meeting with civil society on the budget for the first time. Finally, some scholars have consistently pointed out that over the past few years, the budget size has not been realistic and the projected revenue inflows were over-optimistic (in the light of actual performances in recent times).
9.0 THE MAIN ISSUES WITH THE 2017 BUDGET
The 2017 budget is the second budget to be presented by the President Muhammadu Buhari administration. The budget tagged budget of recovery and growth was based on an Oil benchmark crude oil price of US$42.5 per barrel; an oil production estimate of 2.2 million barrels per day; and an average exchange rate of N305 to the US dollar; target Gross Domestic Product (GDP) growth rate of over 2 per cent; and target inflation rate of single digit; as well as a deficit of N2.36 trillion (about 2.18 per cent of GDP). The 2017 budget is a continuation of the 2016 plans but adjusted to reflect new additions made in the Economic Recovery and Growth Plan. The proposed capital expenditure is 30.69 percent. The projected exchange rate of the naira against the dollar in the 2017 budget is N305 to the US dollar.
In 2017, a total budget of N7,298,507,709,937 was proposed. The allocation to Agriculture was N123,440,807,622 representing 1.69 percent of the total budget and an increase of 37.8 percent from the 2016 budget. The total health sector allocation was N304,190, 961, 403 representing 4.17 percent.
The allocation to education in the 2017 budget was N540 billion in 2017 up from N369 billion in 2016; N492 billion in 2015; N493 billion in 2014; N426.53 in 2013 and N400.1 billion in 2012.
It is very clear that allocation to education is very low in Nigeria especially when compared to other African countries: Burundi -16.59 % in 2010; 14.98 % in 2011; 16.43 % in 2012 and 17.24 % in 2013; Benin-25.02 % in 2012; 22.34 % in 2013; and 22.23 in 2014; Ethiopia 26.30 % in 2010; 29.67 % in 2011; 30.54 % in 2012 and 27.02 in 2013; and Madagascar- 19.78 % in 2011; 20.33 % in 2012 and 13.99% in 2013.
In the 2017 budget, there are special initiatives with social inclusion benefits including provision of N100 billion for a new social housing programme; N50 billion for each geopolitical zone to set up special economic zone; N20 billion to revive export-expansion grant; N15 billion to recapitalize Bank of Industry (BOI) and Bank of Agriculture (BoA) and N500 billion special intervention programme.
The two ministries that received the highest recurrent expenditure are interior (N482.37 billion) and Defense (N465.87 billion).
Compared to the past, there are some positive improvements in the 2017 budget. There is a slight improvement in capital budgetary allocation although the change is not big enough. There are some progressive initiatives in line with the ideological commitment to social democracy including social protection initiatives and social housing. There is marginal increase in budgetary allocation to agriculture, education and infrastructure but still insufficient to cause transformative changes.
Historically, there has been issues with the budget process, content of the budget as well as implementation challenges. These issues have continued with the 2017 budget.
a. Process Issues
i. Citizens and communities do not participate in the selection of projects that go into the budget.
ii. Legislators are not consulted on the selection of projects into the budget.
iii. Oversight of the budget process by the legislature, civil society and the media is weak. The Public Accounts Committee which was very popular in the second republic has become very ineffective.
iv. There is still confusion on the limits of legislative power in appropriation.
b. Content Issues
i. Low budgetary allocation to sectors that will have impact on the lives of citizens such as Agriculture, health, education and agriculture. For instance, while the budgetary allocation by Republic of Benin and Ethiopia is more that 20 percent of the total budget since 2012, that of Nigeria is less than 10 percent.
ii. Frivolous expenditure has continued over the years. For instance, Foodstuff and cattery materials had a budget of N92.6 million in 2016 and N123.2 million in 2017; newspapers had a budget of N10.2 million in 2016 and N28.3 million in 2017 (This translates to 387 newspapers per day at N200 per newspaper for 365 days).
iii. High level of recurrent expenditure that will constrain development
c. Implementation issues
i. Challenges of implementation has been a recurrent decimal and the late passage of the budget and a laborious procurement procedure have not been addressed.
10. THE WAY FORWARD
From the above, the budgetary process can be improved by addressing the process, content and implementation issues. There is an emerging consensus among civil society that the following issues need to be addressed going forward:
1. Promoting citizen engagement in the budgetary process from selection or projects through implementation to monitoring and evaluation.
2. Civic education: social, economic and political resilience, budget literacy, comparative analysis of best practice in budgeting
3. Partnership among those working on budget issues
4. Engaging the government: on promises made during elections, development plans, interrogating budget assumptions and engaging legislators.
5. Advocacy and Campaigns: creating Transparency and Advocacy Champions
6. Budget monitoring: Tracking of budgets
7. Capacity Building for legislators, CSOs and the media on the budgetary process