By the time the Presidential and National Assembly elephants finish their fight over the 2013 budget, you can expect that the already troubled economy could ‘shut down’ finally – to borrow the finance minister’s threatening words. It is interesting to hear from the finance minister that an economy with a duly planned and approved budget, run by pundits in money and credit, would collapse in three months unless the budget is amended.
If it will take budget amendments to save the economy from collapsing, I think that those who planned such a budget failed on their job. Now the legislators, who are to consider and amend the budget, are bent on proceeding on a recess on 25th July and will not return until the end of September when the economy would have collapsed. Another lost year for the nation, isn’t it?
The Presidency has used its two-month delay before signing the 2013 budget to dramatise its disagreement with lawmakers over their increase in the budget numbers. After signing the budget, the President sent in an amendment bill almost immediately in March, which seems to drag along the disagreement.
Well, since the lawmakers understood that the executive is unhappy about their increasing the expenditure figures, they went ahead to cut both capital and personnel costs in a number of MDAs. The Presidency is again unhappy about expenditure cuts and if they are not restored, the economy will collapse. This looks like a budget that isn’t going to take us anywhere, not just like previous years’ budgets but worse than every other budget before it.
What does government want?
I have tried as much as I can to understand this year’s budget but even now I still do not. The President calls it a budget of consolidation and had to engage in all these skirmishes with the legislators to prevent them from turning it into an expansionary budget. The same President is now pressing for expenditure cuts to be restored.
The governor of the Central Bank threw spanners in the works by rejecting a cut in interest rates on the basis of the amendments by the legislature. The anticipation that the increase in the crude oil benchmark could reinforce inflationary pressures was the main reason for the monetary policy committee’s rejection of the option of reducing interest rates in its meeting in January.
The benign inflationary behaviour so far this year confirms that executive’s inflationary fears over the $4 per barrel increase in crude oil price benchmark is over exaggerated. The inflationary fears for which the budget was delayed for two months have turned out to be completely unwarranted. As at now whether what we have is a budget of fiscal restraint or one of expansion is uncertain, neither is it clear what exactly the executive or the legislature actually want to achieve with it.
The budget framework tells a story that the President wants to consolidate the budget by holding down the recurrent expenditure and propping up capital spending. The action of the Senate in cutting personnel cost in some MDAs can be seen to be in line with the executive’s expenditure trimming objective. So what again is the problem and why should the economy collapse if public servants are not paid at the end of a month?
Non-payment of salaries has been the feature of the private sector business for many years now and the economy has not yet collapsed. In the severe cash and credit squeeze caused by the prevailing monetary policy, the small- and medium-scale enterprises in the private sector have virtually withered.
Circumscribed by high interest rates and broken down infrastructures, even the surviving companies are unable to pay their significantly reduced workforce on a regular basis. So if owing salary arrears is a measure of a collapsed economy, then the Nigerian economy has since collapsed, at least in the private sector.
By the way, hasn’t this economy collapsed? We have an economy where government has to borrow to pay workers; where the masses of the potential labour force are on the streets jobless and where poverty has reached its possible extremities in a human society. It is a country where you are on your own for security, businesses have no reliable basic infrastructures and common access roads are not available to the public. What else will an economic collapse mean to us that we have not seen?
The finance minister once said that this nation cannot develop with about 70% of aggregate budget votes sunk in non-productive spending. The governor of the Central Bank concurs that a critical cut in recurrent expenditure needs to happen in the government sector in order to rebalance the development forces of the economy. Both of them are members of the President’s economic transformation team. Since they know all the answers, I don’t know what is stopping them from transforming the economy from there.
Now that the Senate has begun to move in the direction of expenditure cuts, I think it behooves the executive to tag along. Fiscal consolidation isn’t going to end on paper; it has to happen in reality for us to get a chance to channel the nation’s resources into productive activity.
The promised restructuring of government expenditure needs to be accomplished to spur positive influences on the productive economy. One key policy decision that is expected to flow from fiscal retrenchment is the ending of monetary policy choke that has diverted the flow of money and credit from the private sector to the government’s purse.
Another positive development expected from the restructuring of government expenditure is greater attention and pursuit of the task of rebuilding the nation’s infrastructural facilities. This is a year in which fresh hopes have been raised that productive activities will benefit immensely from a major improvement in public electricity supply. Half of the year has gone and the hopes seem to be fading as has been the case all these years.
I am pressing to know how all these fighting and threatening about the budget numbers would deliver the objectives of the 2013 fiscal plan to the nation. To what extent is the expenditure restructuring objective of the fiscal plan aided or retarded in the present situation? A logical explanation is needed as to how far the key targets of this year are being realised and what are the specific challenges that the executive is facing at this time.
Neither a general statement of incapacitation nor a threat of imminent economic collapse will satisfy Nigerians that those who owe us the duty of effectively implementing a duly signed budget are discharging that duty. The executive is reminded that by signing the budget, it has endorsed it as good for implementation. It will be held responsible for its success as well as its failure. Enough of accusing fingers rising up and down; if you can’t implement it, don’t sign it!
Go on with consolidation
The main aspect of the budget to which we cannot entertain any excuse this year is the plan to reduce government’s over bearing presence in the credit markets. This needs to happen at all cost. Whether the Senate restores the cut expenditures or not, we want to see a significantly reduced government borrowing from the banking system.
We have set out this year to consolidate government domestic debt profile by not reissuing maturing debt instruments. This plan should remain on course in order to reduce the high interest obligation that government presently bears on its huge borrowings and rebalance its overall cost-revenue structure. This should free a lot of resources for productive engagement in the economy.
How far we will be able to recharge the growth functions of the economy and strengthen the long decelerating economic growth this year depends on whether or not government achieves the planned fiscal restraint. The hopes for keeping inflation rate low this year rest on the plan to restructure government expenditure in favour of capital spending. We want to see the Central Bank return to its job of channeling money and credit into productive activities instead of a sweeper of inflationary flood that government has turned it.
We want to know how far government has gone in realising the key budget objectives, not when the economy that is claimed to be studded with technocrats and world acclaimed financial experts will collapse. I hope that the high and the mighty in government will not keep hanging around in the government house and let the economy come crashing over their heads. We want to see resignation letters before the crash.
On the basis of lower inflationary expectation this year, the Central Bank is expected to move in the direction of low interest rates. This is the major stimulatory policy to the production sectors and the general economic activity expected to move the economy ahead. While the inflation rate is coming down however, the bank’s governor is saying that interest rates needs to go up instead. This makes it quite clear that the domestic production sector is not of any interest to him.
Dangers of delay
With the two-month delay in signing the budget, I knew that government is going to have problems with it. While the fiscal plan was to cut down on recurrent expenditure and prop up capital spending, the opposite actually happened in virtually the whole of the first quarter, giving a serious puncture to the budget. The critically needed capital expenditure programmes were put on hold during the first three months of the year while recurrent expenditures were running.
The problem now is that the delay in signing the budget is bound to cause a significant deviation of actual government spending from the initial plan. If the President knew he was going to sign the budget eventually, what is the purpose of the two-month delay? That delay, of course has its consequences, which cannot, in fairness, be placed on the legislature.
The gains expected to be made in the economy following an early passage of the 2013 appropriation bill were lost in the unexpected delay in its implementation. This was not expected of a government that is desirous of achieving its objective of ‘consolidation and inclusive growth’ the central plank upon which the 2013 budget was built.
With the arms of government trading words over the budget midstream, both the current year’s budget and that of the coming year appear to be in deep trouble. The lawmakers are not likely to begin considering the proposed budget amendments until they return from their recess in September. In that same month, the Presidency is supposed to have delivered the 2014 budget to the National Assembly.
How long will it take the lawmakers to consider and approve the proposed amendments and when will the executive implement the budget eventually? How will the executive plan the next year’s budget from an old budget that is yet to be amended and implemented and when will it be implemented?
From the ongoing, it is quite obvious that the high hopes of the 2013 budget are as good as dashed. You can see that capital budget programmes are likely to suffer again this year. The same controversy about non-implementation of the capital budget that played up last year looks very likely to be the story again this year.
Recall that no capital warrants were released by government during the last quarter of 2012. A further loss of the first quarter of this year means that no reasonable capital projects were done in about six months.
You can expect also that government will be unable to achieve fiscal restraint, which will translate into inability to curb government borrowing. The crowding out of the private sector in the credit markets may be sustained contrary to what the budget set out to achieve. This means that a greater share of the increase in the banking system credit to the domestic economy could go into financing government activities again as happened last year.
Last year, credit to the government sector grew by 15.1% to about N1.33 trillion during the last quarter. This is against an improvement of 2.3% in banking system credit to the private sector to about N15.28 trillion during the same period. Banking system’s holding of government instruments, mainly FGN bonds and treasury bills, rose by 35.3% during the last quarter of last year.
While there is no time on the side of government in implementing major capital programmes needed to bridge the infrastructure gap in the economy, even the little time on hand is being wasted in the controversy between the executive and the legislature. It had been expected that the early passage of the 2013 appropriation bill would lead to a reasonable progress in the implementation of capital projects. However we have ended up eventually wasting the good time available and are again faced with the usual constraint of time on budget implementation that was clearly avoidable for this year at least.
With the government divided against itself, what can we expect but another year of budget failure. For the key projects planned for the year such as completing ongoing electric power generating projects, this means bad news. The improved electricity supply promise of the President depends on completing these projects. A lot of the hopes for building new capacity in the economy also rest on the ability to bridge the nation’s infrastructure gap.
Further delay in implementing capital projects is sure to undermine the central objective of the 2013 budget. The economy is the worst for it with the fading dream of ever building a new productive capacity. Without a new capacity propping up the private sector, how can we stem the continuing decline in economic growth?
Domestic output growth has been declining for the past three years and the key sectors of the economy are leading the slow down. The projected GDP growth rate of 6.5% for 2013 represents even a further slow down from the estimated 6.61% GDP growth recorded in 2012. While the economy has the potential for stepping up growth, the opportunity to realise it is being wasted by a government that is at war with itself.
The danger is that the prospects for a sharp slow down of the economy have increased this year. This is because the important steps needed to stimulate domestic production in the key sectors of agriculture and petroleum have been missed. Agricultural output has been slowing down since the last quarter of 2011 while the petroleum output has maintained a general decline since the second half of 2011.
The major problem that this poses for the economy, where the main job creating sectors have continued to slow down, doesn’t seem to get the attention it deserves. While economic growth remains comparatively strong by international standard, it is the low job content sectors such as telecommunication, hotel and tourism that are driving it. Consequently, relatively high economic growth isn’t being reflected in terms of domestic economic expansion and general prosperity.
Lack of appropriate response to the floods that damaged farmlands across the nation last year has created new problems for us this year. While it was imperative for government to take on fresh initiatives as early as possible to step up growth of the agricultural sector in 2013, what happened instead was a two-month holiday on budget implementation. This is a delay in a situation of such compelling necessities. The result is the continuing slow down in agricultural production, the worsening problem of food supply shortages and rising food prices.
Government and its Central Bank need to moderate their view on inflation as a monetary phenomenon and consider also the domestic output and supply sides to it. To the extent that the delayed implementation of the budget stifles output growth further, even fiscal restraint could fail to achieve the low inflation rate objective.
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