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Published On: Wed, Dec 24th, 2014

2015 budget estimates and what they tell us

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By Boniface Chizea

Wednesday,December 17, 2014, Coordinating Minister of the Economy Dr. NgoziOkonjo-Iweala laid separately before both chambers of the House at the National Assembly the 2015 Budget estimates. As one contemplates the dilemma which must have confronted those charged with the responsibility of putting the budget estimates together one is reminded of that popular saying attributable to Tai Solarin of blessed memory; May Your Road be rough! It does not take any deep introspection to appreciate the wisdom in that saying. If your way is rough you will never become complacent, drop your guard or take anything for granted. You are bound to be on the alert with your eyes wide open. It must have been rough putting the budget details together this time around in the context of the prevailing global economic scenario hallmarked by cascading oil price. As at last count we had at least three changes to the benchmark price of oil; it was 78 dollars per barrel when the Medium Term Expenditure Framework was presented in September, 2014; then 73 dollars before we finally settled at 65 dollars per barrel which has been retained even if on the eve of the presentation the price of oil was trading at below the benchmark price of the budget.

This situation occasioned all manner of comments with some people even suggesting that the authorities could have bided their time and not present the budget when it was presented. But in spite of the country’s unimpressive record with getting the budget ready for approval and implementation early enough, it could have been irresponsible to delay the presentation of the budget because of uncertainties occasioned by the volatile oil market factoring in the fact that successfully budget implementation is crucially dependent on the time the budget is ready for implementation. But the fact that we might have issues with the benchmark price does not affect the integrity of the estimates as no one for sure can second guess what will happen to the price of oil over the period. The authorities have expressed their belief that oil price will average between 65 to 70 dollars next year and be that as it may whatever happens should be accommodated through close tracking and monitoring with appropriate response elicited as the need arises. In fact align with this prevailing sentiments the Speaker of the House of Representatives was quoted to have sought assurances to the effect that there will be no further review of the benchmark price of oil upon his acceptance of the estimates. Once the budget has been approved there will most certainly be no going back on the entire budget and therefore there is nothing to worry about. It will be left to the authorities to grapple and come to terms with any fallouts.

The Budget has been tagged Budget of transition and Budget of transition truly it is. Elections are due in two months and the estimates will remain relevant depending on the outcome of the elections which most informed commentators have adjudged close to call. If there is change in government it is a fact that we will be back to the drawing board with different actors and of course an entirely new estimates being considered as the entire budget is revisited. But even if President Jonathan is returned it is still a transition; a cross over from one regime to another even if in the latter case the disruption to the budget will be minimal. There is also transition from the fact that the budget as we have been forced by circumstances is now not as dependent on the oil market as oil now contributes 53 per cent to the funding of the budget. And this is a major most welcome and desired transition which this country has been angling for since the mid-eighties. This is a landmark in the annals of the country as it might signpost the end of vulnerabilities and shocks which the Nigerian economy had suffered due to volatilities in the oil market.

Budget 2015 has proposed aggregate expenditure of N 4.358 trillion down from N 4.542 trillion in 2014 representing a drop of 6.1 per cent. The Recurrent expenditure in the budget is estimated at N 2.622 trillion; 86 per cent of the budget representing an increase of 7.6 per cent relative to the comparative estimate for 2014. The capital budget at N 634 billion compared to the estimate of N 1.100 trillion for 2014 representing a drop of 42.4 per cent has drawn scathing comments by compatriots. It has been argued that no meaningful growth can be expected in the economy with that level of capital budget. This probably explains why the authorities based on their independent calculations have reviewed downwards the projected growth in GDP to 5.5 per cent down from the earlier estimate of 6.75 per cent with the IMF weighing in with their own estimate of Nigeria GDP growth of 5 per cent. But what is even more worthy of note in this regard is that the effective capital expenditure in the budget particularly during 2014 is within the range of the projected estimates for 2015. How about that for realism! But the fact remains that this projected level of capital expenditure representing an eight year low even below a comparable low expenditure of N 785.17 billion included in the 2008 budget estimates not factoring in what that expenditure represents today in real terms.

Aggregate revenue for the year isN3.602 trillion, down from 3.731 in 2014 signaling a rate of drop of 3.5 per cent. While oil revenue component of this estimated at 1.918 trillion in 2015 down from an estimate of 2.114 trillion in 2014 representing a drop of 9.3 per cent. Non-oil sector contribution to revenue in 2015 is estimated at 1.684 trillion up from an estimate of 1.616 trillion in 2014 representing an increase of 4.2 per cent. The revenue estimate from the oil sector was premised on the production of 2.28 barrels per day down from 2.39 in 2014 with a benchmark price of 65 dollars and at an exchange rate of N 165 to the dollar. Issues have been raised with these assumptions. It is argued that the estimate of daily oil production is not quite realistic considering the experience of not being able to meet the production quota for some time now due to leakages underscored by vandalism and illegal bunkering and also that realistically a higher exchange rate could have been used which could have meantthat higher revenues would accrue to the sub-national governments. But sometimes we fail to factor in the full implications of the suggestions we make. What message will the authorities be sending out if they had used a higher rate of exchange and what impact could that have had on the psychology of the market and the battle which the Central Bank is currently waging to stabilize the rate of exchange and avoid the Naira going into a free fall mode?

The fiscal deficit is therefore N 755 billion or 0.79 per cent of GDP. The deficit included in the 2014 budget, on the other hand, was N911.9 billion. The Debt Management Office indicated that at 12 per cent the post rebased aggregate Debt to GDP ratio is low and therefore provides head room for additional borrowing. But instead of celebrating this reduction in the ratio of deficit to GDP commentators have asked if that is really the way ahead considering the fact and the reality staring us on the face of worsening unemployment situation. It is argued that this is the time to attempt some reflation of the economy to facilitate badly needed growth in job opportunities.

It will be interesting to see what the attitude of the legislature will be against the background of the awaited elections and if they will adopt a wait and see attitude. And if in their deliberations an attempt will still be made to once again hike the benchmark price of oil which has now become trademark even as commentators have asked why the budget of the legislature should not be reviewed downwards in the context of the prevailing austerity measures which the authorities have unfolded.

Dr. Boniface Chizea wrote in from Lagos


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