2018 Budget Delay: Issues And Impact

2018 Budget Delay: Issues And Impact

Introduction

On the 16th of May 2018, the National Assembly passed a budget of N9.12 trillion for the 2018 fiscal year. This budget represents a 6 percent increase over the N8.61 trillion budget proposal presented by President Muhammadu Buhari on the 7th of November 2017 before a joint session of the National Assembly. It also represents a 22.6 percent increase over the N7.44 trillion appropriated in 2017. The fiscal operations of the 2018 appropriation are to result in a N1.95 trillion deficit, amounting to 1.73 percent of GDP, which represents a N60 billion reduction compared to the 2018 proposal by the Executive arm of government (with a deficit of 1.77 percent of GDP) and N450 billion reduction compared to the 2017 budget where the deficit was 2.61 percent of GDP. This reduction in deficit is in line with the ERGP’s objectives

The problem with the 2018 budget began with the late approval of the 2018-2020 Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) which is the policy document that articulates the assumptions underlying the budget and, thus, should ordinarily precede the presentation of the budget to the National Assembly.
The MTEF which had earlier been presented to the National Assembly had to be withdrawn by the Executive for further review. It wasn’t until 8th December 2017 (more than a month after the presentation of the 2018 budget) that the MTEF was finally approved, making it the first time the budget presentation will be made before the passage of the MTEF since the enactment of the Fiscal Responsibility Act in 2007.
In passing the 2018 budget, the National Assembly raised the oil benchmark price from the $45 per barrel proposed by the Executive to $51 per barrel, while daily oil production was retained at 2.3 million barrel per day. Other parameters such as the exchange rate and GDP growth rate were also retained at their original figures of N305 to $1 and 3.5 percent respectively. This change in the benchmark price increased total revenue which allowed for a reduction in fiscal deficit and an increase in expenditure.

 

Issues surrounding the delay

It took more than 6 months after the President presented the budget proposal for it to be passed. This delay was due to a number of issues raised by the lawmakers, including:

  • Alleged padding and duplication of items in the 2018 Appropriation Bill, with observations that the Bill contained inconsistencies and inaccuracies. The legislators had complained that some of the pronouncements made by the President in his budget presentation speech were not reflected in the submissions made by Heads of some MDAs during the defense of their budget proposals. There were also cases where the MDAs did not come fully prepared with necessary information and documents in the prescribed format;
  • The National Assembly members also complained that a number of ongoing projects in the 2017 budget were not rolled over to the 2018 budget proposal, thus, showing little or no connection between the two budgets, which results in more projects being abandoned. In preparing the 2018 budget, the executive had indicated that about 50 per cent of the 2017 capital vote would be implemented by the end of 2017 with the balance of 50 percent to be rolled over to 2018. However, the implementation of the 2017 budget stood at less than 17 per cent as at the end of 2017 with grave implications for the completion of on-going projects;
  • The legislators had reasoned that it will be difficult to approve the 2018 budget proposal when the performance of the 2017 budget was not fully known. They insisted that the executive should brief them on the performance of the 2017 budget, showing exactly how much had been released by the Minister of Finance, how much had been received by the MDAs, as well as the status of project implementation; and,
  • There were also allegations that the 2018 budget proposal was based on a lot of faulty estimates and unrealistic projections. For example, of the projected N807billion independent revenue in the 2017 budget, only N155billion had been realized by the end of September 2017, representing a shortfall of 74 percent. Yet a similar projection of over N800 billion independent revenue was made in the 2018 budget proposal. There were fears that the budget faces the risk of poor implementation from the start if it was based on a faulty foundation of unrealistic assumptions and projections.

The executive however debunked the allegations that the 2018 budget proposal was submitted to the National Assembly without details for some MDAs. It stated that while the National Assembly may require additional information with respect to the budgets of State Owned Enterprises, this should not affect the early passage of the ‘main budget’ of government.

Implications of the late passage of the Budget on the Economy and Businesses

Some of the implications of the late passage of the 2018 budget include:

  • A slowdown in the economic recovery process by postponing the multiplier effect of government spending. If funds for critical projects are not disbursed on time, the tempo of economic activities will be reduced, dragging the economy into a state of inertia and economic decline. The late passage of the budget is therefore a threat to achieving the ERGP targets and to Nigeria’s goal of becoming one of the top 20 economies by 2020;
  • Capital expenditure such as infrastructural development, construction work and payment of contractors will also be affected. This is especially of concern when these funds are meant to be channeled towards sectors that improve the ease of doing business, such as transportation and electricity. Performance of these sectors is correlated with the success of Nigerian businesses, which are key players in the effort to combat the country’s high unemployment rate. It also affects private sector operators that depend on the budget to plan their activities for each fiscal year. Delay in passing the budget therefore slows down their activities, with negative economic consequences;
  • In addition to adversely affecting the economy, slow provision of critical infrastructure needed to boost industrial activity negatively affects the country’s ability to export locally made products, and therefore reduces its revenue and foreign exchange from non-oil exports; and,
  • There is also the issue of inadequate absorptive capacity as the country may not be able to spend so much money in such little time. This may result in dislocations in the macroeconomy.
Way Forward

Delay in Nigeria’s budget process has become the new norm in recent years, and has often been caused by disagreements between the executive and legislative arms of government. It is crucial that both arms work on improving the schedule of the country’s budget process.

Going forward, the executive order of May 2017 by the Vice-President Professor Yemi Osinbajo, which placed emphasis on the timely submission of the annual budget estimates of MDA’s, needs to be strictly adhered to. The executive order directs all federal government MDAs to submit their schedule of revenue and expenditure estimates for the next three years to the Minister of Finance and that of Budget and National Planning on or before the end of May of every year. It also directs the MDAs to forward their annual budget estimates to the two Ministers on or before the end of July every year.

 

MUDA YUSUF

DIRECTOR GENERAL

LAGOS CHAMBER OF COMMERCE AND INDUSTRY

8TH JUNE 2018