PLANNING TO FAIL WITH BUDGET 2015
BY HENRY BOYO
Over the years, both the Legislative and the Executive arms of government have consistently demonstrated their faith in the popular axiom that “he who fails to plan, plans to fail”; consequently, they have, always ensured that an Income and Expenditure plan is passed into law annually; nonetheless, inspite of their apparent loyalty to the concept of planning, public expectation for improved infrastructure and enhanced social welfare has, ironically remained unfulfilled, such that some cynics may suggest that our economic and social welfare couldn’t be worse even if we ignored the need for a formal plan of action.
In reality, however, empirical evidence suggests that planning is intrinsic to success in every endeavour, including the business of government; so, why is our own case different; why do we fail, even when we apparently plan? We will hereafter take the 2015 budget as a paradigm, and identify the areas of deviation from best practice in successful economies where annual plans positively impact on the welfare of citizens.
Notably, in such successful economies, budget implementation religiously commences on the first day of each year. Regrettably, in contrast, as at the first week in March, Nigeria’s 2015 budget still remains inchoate. Nonetheless, this is not unusual; infact, most Nigerians may not readily recall any budget enactment before March. Clearly, the nominal salaries and allowances of civil servants are immune to any delayed passage of the budget for up to 6 months; consequently, there is never any real pressure or anxiety for civil servants and political office holders to complete the budgeting process promptly. Lately, however, there are suggestions that in the absence of an Appropriation Act the 6 months latitude for operational expenses should be reduced to ninety days; however, some critics may wonder how we can hope to become a first world country, if we cannot embrace the required fiscal discipline that will ensure that budget implementation begins on the first day of January each year!
Ultimately, the more serious impact of delayed budget passage is primarily on the capital budget, which captures expenditure on those sectors and infrastructure that could reduce hardship in the lives of increasingly more citizens. Unfortunately, delayed budget enactment, has consistently frustrated the comprehensive implementation of this most essential part of the budget for several years; indeed implementation rates above 50 percent for Capital Expenditure is often regarded as success, while the unspent funds are hazily accounted for with well tested civil service procedures.
In view of the above outcome, the present decrepit state of public infrastructure should not come as a surprise; for example, despite over $20bn expended on power in the last fifteen years, power still remains epileptic with barely 4000MW generated from the national grid. Ironically, we have also had to selectively provide additional soft loans to those buyers to whom we sold our power generating infrastructure with a loss of over N400bn! Curiously, despite the privatisation of power, government’s sustained expenditure in the subsector still exceeds the consolidated funds brought in by the new owners of our power infrastructure. (See: NEGATIVE INCOME FROM PHCN SALE? OCTOBER 28, 2013, @ www.lesleba.com.)
Clearly, with the present paltry 15 percent allocation (this includes 5 percent from SureP) to capital expenditure, the 2015 budget cannot raise much hope of any successful remediation to our critical infrastructural deficit. Indeed, with the legislators’ current demand for almost 80 percent reduction in the projected SureP allocation, the net capital budget may be less than 10 percent of total expenditure, despite the urgent requirement for at least 50 percent annual allocations to gradually redress the general decay.
Sadly, about 90 percent of all federally budgeted revenue in 2015 will simply be consumed in running the civil service; surprisingly, inspite of the savings from the alleged thousands of ghost workers so far weeded out of government service, and established due process for government procurements, the recurrent budget still continues to increase while the capital budget contracts; surely, such an inverse strategy will never transform us into a first world country. Furthermore, the seemingly grudging 10 percent allocation (N492bn) to education, in place of best practice recommendation of 26 percent of total budgeted expenditure, probably sounds a warning of an impending deficit of qualified/trained manpower to drive the economy.
However, the other serious threats to the success of the 2015 budget relate to the adopted benchmark price for crude oil, the Naira exchange rate and uncaged inflation. It is not yet clear if the Minister of Finance and the Budget office will stick to their adopted benchmark of $65/barrel before the recent crash below $50/barrel. Nonetheless, if the more cautious benchmark of $52/barrel proposed by the Legislators is ultimately adopted, then, the budget as it currently stands would become worthless, and the Finance Minister would need to revisit the drawing board to produce fresh income and expenditure estimates for the year 2015.
Expectedly, the protracted nature of such review may make budget enactment a challenge until after the elections in April; unless of course, unfolding opportunities for self service induces the hurried passage of a clearly inchoate budget by the Legislators. Either way, the net product, will be the attendant social misery nationwide.
Clearly, the massive over 20 percent Naira devaluation was evidently unexpected and therefore not factored into the 2015 budget proposals. Indeed, in view of the usually sizeable import component of infrastructure expenditure, the already paltry 10 percent (N500bn) vote for capital upgrade may have also lost 20 percent of its purchasing value to dash any hope of improvement in the social welfare of millions of our countrymen.
Incidentally, if low crude prices persist through 2015, almost 50 percent of projected budget revenue will be wiped off and this will create severe challenges for the implementation of an already modest oppressively austere budgets. In such event, government would incur additional debts with atrocious interest rates in order to fund the N1 trillion plus deficit in a N4.5tn Federal budget, which is sadly, predominantly consumption oriented. It is really a sad day, if inspite of our bountiful resources, we still have to borrow irresponsibly with projected 2015 debt service charges of N943bn (over 20 percent of total expenditure) just to fund our appetite for consumption rather than make serious commitment to social and infrastructural remediation.
Nonetheless, even though civil servants and political office holders could still maintain their nominal incomes and allowances, they will not be totally shielded from an austere or delayed budget. This is because Naira devaluation will push up prices and fuel inflation beyond 10 percent, with serious consequences for the purchasing power of all income earners. Thus, even if your salary or usual income does not change nominally, it will inevitably begin to buy less and less every year. Consequently, unless, there is a commensurate annual increase in salaries and incomes in the face of inflation, the net result is that consumer demand will contract as people involuntarily cut down on their basic needs and endure deprivations, with disastrous consequences for manufacturers and suppliers of consumer goods and services and ultimately for employment opportunities. In such dispensation, budget 2015 would predictably be a dismal failure.
SAVE THE NAIRA,SAVE NIGERIA!!