By Agbo Agbo
As the 2017 budget awaits presidential assent anytime this week, there’s the need to take a closer look on how it affects as all – especially our future as a country. In macroeconomics, It is a fact that countries could spend more than they earn – and Nigeria has been doing this for years. On the flip side however, such extra spending must be channeled toward investments – capital projects. That has not been the case as a huge chunk of our budget has always been channeled toward recurrent expenditure. Will the 2017 budget be different?
Unfortunately, the harmonized 2017 budget proposal recently passed by the National Assembly shows that Nigeria has no regard for this caveat. This year, Nigeria proposes to spend N7.44 trillion. In this proposal, the country expects to earn N5.08 trillion, but plans to spend N5.265 trillion on recurrent expenditure, including servicing loans. (The budget deficit is N7.44 trillion minus N5.08 trillion, which is N2.36 trillion).
The 2017 budget deficit would have been more pronounced had the national assembly not jacked up the $42.5/ barrel oil bench mark proposed by the executive to $44/barrel.
Despite this optimistic revenue profile, in 2017, Nigeria will continue the culture of borrowing to sustain its recurrent expenditure, such as paying salaries. And it doesn’t stop here: Every kobo the country is going to spend on its N2.174 trillion capital expenditure, in 2017, would be borrowed, as well.
What does this mean in plain layman’s term? It simply means that all the proceeds from the country’s oil resources, which ought to belong to this generation and future generations, is being spent by this generation on recurrent expenditure. Nothing is kept for the future – for future generation of Nigerians.
On the surface, since spending on infrastructure is a form of investment, Nigeria seems to be doing the right thing by spending a large chunk of borrowed money, in the 2017 budget, on infrastructure.
But suffice to say that about 46 percent of this borrowed money is expected to come from foreign sources, with an average interest rate of over 7 percent plus possible foreign exchange fluctuations and risks.
This leads to a bigger question: what is the guarantee that this investment on infrastructure would yield returns of over 7 percent, in the short to medium term? This is very unlikely for very obvious reason – corruption.
This notwithstanding, we still – to a very large extent depend on the vagaries of the international oil market. Had oil prices not rebounded, the immediate economic impact of Nigeria’s 1.8 trillion capital investment in 2016 – which has had about N1.2 trillion released – would not have gone anywhere close to taking the country out of recession.
Economists are of the opinion that with high interest rates, it is always advisable to make investments with savings. It is in this light that the country’s $1.5 billion savings in the Nigeria Sovereign Investment Authority (NSIA) is commendable even though it is nothing compared to what a population of over 150 million people should have.
The Future Generation Fund of the NSIA is actually aimed at guaranteeing that generations yet unborn would have something to fall back on should the oil market collapse. But Nigeria doesn’t seem to think of its unborn kids.
By increasing the budget’s oil bench mark to $44/barrel from $42.5/barrel, the national assembly has inadvertently reduced the amount that Nigeria could save and subsequently invest through the NSIA.
The way out of this vicious circle is simple, but it comes with determination. The earlier Nigeria cut its recurrent expenditure and increases its investments in NSIA the better it would be for us as a nation. No one should be under any illusion that cutting recurrent is going to be easy – it won’t, but it must be done. This is why resuscitating our real sector is fundamental. While we are battling the bureaucrats at one level, we would ensure that industries come back on stream. This is the only way we can plan for our future in a very volatile world.