Budget 2009: Dead On Arrival!

By

Les Leba

lesleba@gmail.com

 lesleba@swiftng.com

 

 

The 2009 Budget proposals were finally presented to the National Assembly on Tuesday, 2/12/2008 after two postponements within two weeks, due to what may be described as negligent prevarications!  The late announcement of both notices of postponement, were received barely hours before the scheduled briefings, and this certainly speaks volumes on the level of seriousness and commitment of this administration!  Regretfully, this carelessness and the budget content itself also underlined government’s low regard for the intelligence and welfare of our people! 

 

Indeed, the most respectable feature of Mr. President’s presentation was the unequivocal admission that “performance of the 2008 budget has been … far from satisfactory)”;  Nigerians would read this  assessment as abject failure!  The public applause which greeted Yar’Adua’s early presentation of the 2008 budget more than three months before January 1st this year gradually gave way to public anxiety and frustration as the budget was bounced between the Executive and Legislature for another 12 months until its eventual passage six weeks or so before the end of the operative year!  Inevitably, the huge component of recurrent expenses including the constituency and welfare appropriations for the Legislature were disbursed while the budget impasse made impossible the thorough implementation of the capital vote which contained the benefits of overall social welfare!

 

Expectedly, huge sums have remained unspent and both the Legislature and Executive affirmed a residual balance of over N450bn in the capital vote as late as early in November!  In spite of the consensus on the huge value of unspent funds and the reality of the physical and logistic constraints of implementation of the 2008 capital projects, the Federal Executive surprisingly still mandated the immediate release of 100% of the capital vote to all MDAs in November this year!  The sensible expectation, of course, would have been a freeze on all unspent funds, particularly in the capital votes of all MDAs and a simultaneous evaluation of the state of all outstanding projects, so as to determine actual unspent net balance.  Our recent experience with corrupt application of deliberately shored up votes otherwise known as unspent funds at the end of every year, by the MDAs, would have induced a freeze on all accounts rather than disbursement of 100% allocations so late in the year without prior verification of project status!

 

The revenue appropriation process was further compounded by Yar’Adua’s submission of a N600bn (over ¼ of the 2008 budget) supplementary appropriation, the same time that it authorized the release of 100% capital votes that certainly could not be judiciously spent between mid November and mid December 2008!  Admittedly, about N300bn of the supplementary appropriation was apparently dedicated to the still comatose energy sector, but it is not clear if the speed of legislative approval of the bill allowed for a thorough evaluation of what Nigerians can expect in terms of verifiable, statistical and real improvement on the power situation in the country!  The matrix of events relating to the budget expenditure in October/November 2008 just a few weeks before year end smacks of a good dose of fiscal rascality!

 

The same culture of fiscal indiscipline and blurred transparency has also migrated into assurances by the Legislature that the 2009 budget will be thoroughly assessed and passed within three weeks so that implementation will not be delayed beyond 1st January 2009!  They must hope that Nigerians will forget the inability to implement a comprehensive 2008 budget after 12 months of its presentation by Mr. President!  The Legislature have not revealed the magic that would make the same job possible within three weeks, this time around?

 

In his preamble, Mr. President noted that the 2009 budget preparation was based on the “outcomes of the 2009-2011 Medium Term Sector Strategies, which held in July 2008 with involvement of the private sector, civil society and consultation with many of the committees of the House and Senate!  Obviously, these consultations must have held covertly as one does not recall media reports of this exercise; in any event, some members of the Legislature have also dissociated themselves from knowledge of such executive/legislative interaction with regard to 2009-2011 Medium Term Sector Strategies!

 

In a feeble attempt to put a shine on an otherwise lackluster budget implementation, Yar’Adua alluded to the marginally improved ratings (BB- to BB) of Nigeria amongst the least vulnerable economies in the world by Merryl Lynch, an international investment bank!  If truth be told, the rating is in fact a statement of how badly we are integrated into the world economy; ordinarily, poor integration would be a mark of the backwardness of an economy in a global financially intertwined village!

 

A budget as a plan of action is not worth the piece of paper on which it is printed if the underlying assumptions are currently unrealistic!  Thus, the benchmark oil price of US$45/barrel and oil production output of 2.292 million barrels per day (mbpd) are critical to our revenue expectation in 2009!

 

However, the reality is that there is nothing sacrosanct about $45/barrel and current global recession may continue to weaken demand throughout 2009 with adverse consequences on our revenue profile both from a lower price perspective and potential for supply.  The output projection of 2.292mbpd for 2009, however, appears to be unduly optimistic; indeed, some would say reckless!  We recall that 2008 budget was based on output of 2.45mbpd while actual output hovered around two million barrels/day, particularly as a result of insecurity and instability in the Niger Delta!

 

In spite of a lot of movement but no real action in resolving the Niger Delta issue, there is no assurance that vandalisation, militancy and illegal bunkering will permit any output increase above the current inconsistent level of two million barrel/day.  In addition, OPEC, the oil export association to which we belong has suggested further cuts in production by its members in order to prop up falling prices.  A reduction of up to 10% may be on the cards and this may present serious challenges for our revenue expectations next year!

 

Thus, a combination of lower crude prices and contracted production output will lead to severe dislocations to our welfare and development expectation and we will end up still worse off from our already distressed state as a result of fiscal indiscipline in 2008; in which case, the hopes of our people for a better life in 2009 would be dead even before we commence the new year!

 

The 2008 budget was based on an exchange rate of N117/$1.  The Central Bank religiously kept faith with this rate in spite of rational expectation that our unsurpassed dollar reserves would have led to a much stronger naira rate!  The naira rate suddenly crashed to over N130/$1 after the budget presentation as a result of CBN’s reluctance to fund the usual 80% dollar supply in the market.  (So much for the hypocrisy of a market determined exchange rate mechanism!)

 

Nevertheless, a depleting naira rate may actually bolster the quantum allocations from reduced monthly dollar revenue, but the concomitant inflationary push may make the 2009 capital vote meaningless and create problems for domestic petrol prices and the prices of goods and services in the country.  (Next week, we will conclude our evaluation of the 2009 budget!)

 

SAVE THE NAIRA, SAVE NIGERIANS!