By Emele Onu, 06.29.2010 

 

It can be argued indefinitely whether an economically backward nation can develop politically. Many scholars, especially the realists will insist that it is almost impossible to develop strong political institutions, when the economy that provides a means for survival for the people is weakened. That is because when people are hungry, they become susceptible to manipulation by bigots, bent on using them to achieve some sinister motives. 

 

 

An illustration with Maslow’s hierarchy of needs, which is a theory in psychology, will be relevant.Abraham Maslow in his 1943 paper “A Theory of Human Motivation” developed a five-layer hierarchy of needs; the first and most important was “physiological needs.” Maslow said the psychological needs comprising mainly air, water and food are metabolic requirements for survival in all animals, including humans. According to him, if these requirements are not met, the human body simply cannot continue to function, thereby frustrating the pursuit of the secondary and tertiary needs.

 

 

Even a Nigerian politician on electioneering campaign, will brag: “No democracy on an empty stomach.” At that point the politician is making a promise to foster the economic wellbeing of the people, a precondition to permit them imbibe the tenets of democracy. The national budget is the key instrument through, which the government meets the needs of the people for survival, after which they can pursue secondary and tertiary needs until they achieve self-actualisation (one of those needs is organisation – strong political institutions and democracy.) A public commentator last weekend and he said :“If out of poverty, people sell their votes to the highest bigger, then the objective of one man, one vote would have been defeated.”

 

 

Fortunately, the Nigerian constitution vests on the state a number of responsibilities, which include: harnessing the resources of the nation, promoting national prosperity, and, ensuring an efficient, dynamic and self-reliant economy as well as the control of the national economy to secure the maximum welfare, freedom and happiness of every citizen on the basis of social justice and equality of status and opportunity. The constitution also obligates the state to direct its policy to: Promote a planned and balanced economic growth; and harness and distribute the resources of the nation to serve the common good.

 

 

A professor of Economist, University of Abuja, Oyinlola Olaniyi, acknowleged while speaking at “2010 Budget Review” last week in Lagos that public budgets had impacts on some macro economic variables such as income, output, employment, prices and balance of payments, but pointed out that objectives have hardly been met.  The programme was organised by the Nigerian Economic Society and the Chartered Institute of Bankers of Nigeria (CIBN)

 

 

The renowned technocrat, Chief Philip Asiodu, affirmed that the budgeting system has failed the country, stressing that had the country not truncated its economic plans in the 1970s, Nigerian would have measured very well with other countries such as India and China. The President of the Nigerian Economic Society, Dr K.S. Adeyemi said although budgeting has become a yearly ritual in many countries of the world, Nigeria should approach it differently and positively in view of the level of backwardness of its economy. What then are the propositions of the 2010 budget and how can it be made to impact significantly on the country’s economic growth and development?

 

 

2010 Budget Proposition

 

Director of Research, Central Bank of Nigeria CBN, Charles Mordi, said at the Budget Review that the proposal was tailored towards addressing the emerging challenges in the economy by implementing monetary, fiscal, external and other policy measures to mitigate the recession and accelerate economic recovery. 

 

 

He pointed out that several key real sector reforms were programmed for implementation in the budget to address the infrastructural and institutional impediments to the business environment as well as the competitiveness of the economy.  Perhaps, to achieve the foregoing, the budget was predicated on a number of key assumptions including: crude oil production of 2.350million barrels per day (mbd); Crude oil benchmark price of $67/barrel; Joint Venture cash calls of US$7.0 billion; average exchange rate of N150 to the dollar; target GDP growth rate of 6.1 per cent; and target inflation rate of 11.2 per cent. Domestic debt service is projected to gulp N463.16 billion, while N33.92 billion is to be expended on external debt service. The fiscal deficit is estimated at 4.7 per cent of GDP (N1. 5 trillion).

 

 

Mordi said following the key assumptions and the existing federation revenue sharing formula, retained revenue for the Federal Government was put at N2.563 trillion. Aggregate expenditure as contained in the budget, which projected N4.6 trillion, comprised N180.27 billion for statutory transfers, N497.08 billion for debt service, N2 trillion for recurrent (Non-Debt) expenditure and N1,9 trillion for capital expenditure. This position represents a 38.6 per cent expansion over the N3.1 trillion appropriated in 2009.

 

 

“The 2010 Budget hopes to accelerate economic growth through targeted fiscal interventions to further stimulate the economy and support private sector growth for employment and wealth creation. Capital expenditure is to be rationalised and prioritised to avoid spreading resources too thinly across too many initiatives. Accordingly, about 90 per cent of MDAs’ capital expenditure is allocated to five key priority sectors, namely, critical infrastructure; human capital development; land reform and food Security; physical security, law and order; and the Niger Delta,” said Mordi.

 

 

Limitations to Implementation

 

Although the 2010 budget sounded well on paper, budget analysts even from among officials in government have been quick to point out the constraints to its effective implementation.Director General, Budget Office of the Federation, Bright Okogu, said the challenges facing implementation of the budget arose from underperformance of forecast revenue; the continued fuel subsidy; new expenditure challenges that came to the fore after submission of budget to the National Assemble; wage increases to civil servants and tertiary institutions and PHCN arrears of monetisation, among others. He added that they might result in a slightly higher deficit on the budget. 

 

 

Many of the economists and bankers that shared their views at the budget seminar expressed the fear that the factors that paralysed the effective implementation of the 2009 budget might stall the fiscal process again this year.  Mordi disclosed that the implementation of the 2009 Budget was adversely affected by the global economic crisis, particularly, through its impact on the federation revenue, which significantly fell below the projections. 

 

 

“Revenue from crude oil and gas exports plummeted owing to reduced demand occasioned by slowdown in industrial production in most of the advanced and emerging economies. Similarly, the non-oil revenue declined as the lull in world trade resulted in declining economic activities of the nation’s trading partners. Notwithstanding, the slight improvement in crude oil prices in the international market in the second-half of 2009, the drop in revenue continued unabated largely as result of the challenges to crude oil production and lifting in the Niger Delta region with the implication of reduced retained revenue for the Federal Government. 

 

 

“On the expenditure side, the recurrent and capital vote utilisation derailed from budget projections, particularly in the first half of the year resulting into expenditure bunching during the second half of the year. Manufacturing capacity utilisation improved slightly by 0.3 percentage point to 55.0 per cent up from 54.7 per cent in the 2008 fiscal year. Generally, at 12 per cent, the budget engendered moderate inflationary pressure relative to the 15.1 per cent recorded in the preceding year, but was above the projected single-digit for the year,” he added. Director (Macroeconomic Analysis), National Planning Commission, Mr. Ayodele Omotoso, said the 2010 Budget, with estimated expenditure of N4.06 trillion is largely expansionary. 

 

 

He said the magnitude of the expenditure appropriated might lead to a massive injection of liquidity into the financial system, which may have an adverse impact on the level of inflation and compromise the policy on low inflationary growth. He identified other constraints in the budget as the level of deficit financing that is about N1.5 trillion, representing about 33 per cent of the budget. Although the deficit is within international allowable limits, it represents about 5 per cent of the Gross Domestic Product. It is higher than the 3 per cent stipulated in the Fiscal Responsibility Act of 2007.

 

 

Omotosho insisted that setting the benchmark price of oil at $67 per barrel makes the policy on oil Price-based Fiscal Rule difficult to achieve, adding that the objective of insulating Nigeria from the volatility in global oil prices may be threatened. But the Government in the 2010 budget intends to finance the deficits through N897 billion to be raised from domestic borrowing; N132 billion from planned oil licencing as well as N75 billion from Planned Global Bond. 

 

 

Analysts have pointed out that the financing of the magnitude of the deficit could have a crowding out effect’ on the private sector, a development some analysts maintain is already happening in the first two quarters of this year.For Olaniyi, given the importance of food security to poverty alleviation and the contribution that improved delivery of portable water could make to improvement in health and life expectancy, more capital vote should have been allocated to that sector.

 

 

“Capital vote to the security sector ranks next with a total of N134 billion.  This amount is over 500 per cent higher than the capital vote for 2009.  It is my view however, that if the capital vote to the police is released and the projects are efficiently executed, the security situation should improve significantly.  Education ministry ranks 5th by the size of the capital vote, which is N97 billion.  This represents a 143 per cent increase over the capital allocation to the ministry of education in the 2009 budget.  Given the extent of decay in the sector and its importance to the actualisation of the objectives of the budget, more is expected,” he said.  However, the analyst noted that apart from the money voted for the ministry of education, a first line charge of N46 billion is allocated to education sector through the Universal basic education fund and the Federal Inland Revenue Service (FIRS) projection for education tax in the 2010 revenue framework is N63 billion.  

 

 

The analyst said Nigeria might just be waking up to the realities of investing in science and technology, noting that capital budget allocated to the ministry, increased by 296 per cent from N17 billion in 2009 to N43 billion in the 2010 budget. Barring administrative bottlenecks and shortfalls in revenue projections, he said massive construction works in the country, as anticipated by the 2010 budget should be able to create employment if local factors including labour, managerial capabilities and material input are employed in the execution of the projects. 

 

 

It has always been canvassed that Nigeria needs creative ways of reducing the cost of governance to avert the dangers inherent in borrowing for consumption as the sustainability analysis shows.  Omotosho condemned the fact that in spite of the huge oil windfalls over the years, Nigeria still spends all its current income on current consumption.  

 

 

“The entire capital vote for year 2010 is financed.  Seventy per cent of this finance is from loans (both domestic and foreign) yet less proportion of the budget is allocated to the critical sectors than the previous year’s budget did.  This will make it difficult to repay the loans from the stream of future income that the current investment would generate.  It is a dangerous path to tread as the oil windfall will not last forever,” he warned.  Everybody, including the government keeps thinking about the way out from the anticipated 2010 fiscal quagmire. 

 

 

Towards Positive Impact on Economy

 

Director General, Budget Office of the Federation, Bright Okogu said to surmount the challenges in the fiscal year, a revision of both Fiscal Framework and Budget are necessary to reflect present revenue and expenditure realities. The 2010 Budget and Fiscal Framework is being revised at the instance of the executive, in consultations with the Legislature. Besides, the DG said the government is making efforts to plug revenue leakages by various means including the audit of the Nigeria National Petroleum Corporation (NNPC), process audit of all revenue-generating entities, by strengthening of pre-shipment inspection for crude oil and fostering some expenditure cuts in overheads and capital.

 

 

He said the expected 2010 real GDP growth rate of 6.1 per cent and a target inflation rate of 11.2 per cent can only be achieved if the government increases investments in critical infrastructure, implements sectoral reforms, maintains macroeconomic stability and puts in place processes that would ensure lasting peace, security and development in the Niger Delta.“The installed power generation capacity in Nigeria is 6,000mw while the current available energy output is around 4,000mw due to non-availability of gas. Conservatively, it is estimated that the country will need about 12,000mw but transmission and distribution networks are in poor state and require complete overhaul. 

 

 

“There is also need to improve the road and aviation networks with serviceable rail and marine infrastructure to deliver a truly intermodal and modern transportation system for the country. These critical infrastructure interventions by government will mostly fall under Public private partnership (PPP) arrangements that will create new regime of mass construction and huge employment opportunities,” he added.The expert further pointed out that for the objectives of the fiscal regime to be achieved, government would have to move away from being an exclusive provider to a facilitator in partnership with the private sector. 

 

 

“There should be a standard and transparent methodology in PPP to attract bidders, stimulate competition, lower prices and reduce government risks. Thus, the move away from government-owned and government-run institutions remains vital. PPPs will involve the private sector supply of infrastructure assets and services that have traditionally been provided by the government. This will lead to an infusion of private capital and management that can ease fiscal constraints on infrastructural investments and increase efficiency.

 

 

“Increase in foreign investment inflow is also feasible in 2010 with deepening and sustained implementation of PPP framework and other related economic reforms. In 2010, there should be extensive focus on monitoring and tracking the impact of resources utilised as part of the ongoing reforms to introduce a comprehensive performance-based budgeting system. Therefore, a monitoring and evaluation system that uses special electronic templates to systematically track and report on the actual outputs and outcomes (capital vote in particular) achieved by MDAs has been put in place. This system will ensure that the focus will shift from resource commitments to MDAs to what was actually delivered by the various MDAs. Also, quarterly budget monitoring and evaluation reports will be published in line with the provisions of the Fiscal Responsibility Act 2007,” Okogu added.

 

 

Experts said the Fiscal responsibility Act has come to the rescue of the budgeting system by putting in place mechanisms for accountability and transparency as well as ensuring that the common wealth is utilised for the good of the citizenry.The Act, it is said, would provide for the prudent management of the nation’s resources, ensure long-term macroeconomic stability of the national economy, and secure greater accountability transparency in fiscal operations within a medium-term framework. 

 

 

On the whole, the various speakers and experts advised that for the 2010 fiscal year to meet its people-focused objectives, the government must continue to confront boldly and frontally the challenges before the country; focus on financial reforms, governance, public service reforms, privatisation and strengthening of the business environment for private sector growth; continue to approach issues concerning the economy and the shared vision, through regular engagement and consultations with key stakeholders, especially the private sector operators and institutional investors and always look beyond the immediate challenges to build a new and strong Nigeria that represents the nation’s collective pride and also presents an economy that future generations of Nigerians will be proud of.

 

 

The thinking is that if Jonathan’s government can make every penny in the budget to count, the people will have no need to sell their votes; it is only then that “one man, one vote” can count properly and garnish the nation’s democracy.

 

(Source:ThisDay)