Tell Magazine

By AKPAN H. EKPO

President Goodluck Ebele Jonathan recently presented the 2013 budget proposal to a joint session of the National Assembly.  The budget, resting on the theme of: “Fiscal Consolidation with Inclusive Growth”, appears to be a continuation of the President and his team’s perception on how best to transform Nigeria into a modern and knowledge-based economy. Budgets, though mere estimates, are important not only because they reflect the financial outlays of government but also because they are the government’s philosophy for moving the country forward in a given year. The President, through the Federal Ministry of Finance and Office of the Budget, must be commended for the timely presentation of the 2013 budget estimates.  The National Assembly now has ample time to examine the budget, thus performing its oversight functions.  Perhaps, this may be the first time in recent years that the budget, after being accented to as the Appropriation Act, would be implemented on January 1, 2013.  The budget has taken into account the capital component of the first implementation of the National Development Plan as well as the Vision 20: 2020.  Moreover, it is crucial that the 2013 budget estimates be discussed alongside with the 2012 – 2015 Medium Term Expenditure Framework and Fiscal Strategy Paper, MTEF&FSP.  Consequently, in terms of rigour, rules and processes, the 2013 budget estimate is difficult to fault. It reflects the technical competence of the Budget Office, and it is hoped that the inherent capacity is sustained. (The situation is not the same in most of the states and local governments in the country).

Nonetheless, while it is important to stress fiscal consolidation, the problem in the system is more of fiscal co-ordination.  States and local governments have constitutional rights to spend in a given manner, and if expenditures at the other level of government are not properly coordinated, then fiscal consolidation becomes a mirage. The federal government ought to have a clue, albeit on budget estimates, of expenditures at the other two levels of government. The magnitude of such expenditures could be projected through historical trends. Huge expenditures of the state and local governments can put in disarray the fiscal policy of the federal government. There are 36 states and one Federal Capital Territory but one Nigerian economy.

The other levels of government are very vibrant and can raise debt instruments to enhance spending. The manner in which all states and the FCT meet to share revenues can also provide a forum for fiscal co-ordination. The deficit is to reduce to 2.17 per cent of GDP in 2013 as compared to 2.85 per cent of GDP in 2012.  While this ratio falls within the threshold of the Fiscal Responsibility Act, there is nothing really wrong with deficit financing provided the projects so financed such as infrastructure, etc, are viable and can pay their way. (Studies have shown that deficits of five per cent of GDP geared torwards infrastructural development have stimulated growth and development in economies like Vietnam and China, among others.) What the Nigerian economy needs to avoid is fiscal rascality by all levels of government.

In my view, the concept of ‘inclusive growth’ is rather a misnomer. All growth is broadly inclusive. Growth connotes a sustained increase in the production possibilities of an economy over a long period of time. All economic agents contribute to growth and their shares depend on their relative contributions. This is so, no matter how growth is measured. How the growth is distributed coupled with structural changes within an economy constitute economic development.  If an economy is growing but cannot address positively such questions as — What is happening to employment? What is happening to health? What is happening to the provision of basic needs, among others? then that economy is not experiencing development.

President Jonathan has examined these issues in the 2013 budget. Therefore the budget ought to have been captioned: “Fiscal Consolidation, Growth And Development”. It is because, over the years, most economies have been experiencing non-employment generating, and non-pro-poor growth that has necessitated the invention, particularly by the Bretton-woods Institutions, of the concept of ‘inclusive growth’. However, if development takes place, growth would further be enhanced. Consequently, ‘inclusive growth’ suggests the failures of the trickle-down development thesis. In the case of Nigeria, the high growth rate of almost 8 per cent has not addressed cogent development matters, hence the economy remains underdeveloped.

Another matter in the 2013 budget centres on the assumption of the benchmark oil price of US$75/ barrel which reflects a marginal increase from the US$72/ barrel approved in the 2012 budget. Except the joint House of Assembly has a better robust model for forecasting the oil price benchmark, the US$75 / barrel is more realistic.  In forecasting, it is always better to be conservative. The technical personnel in the Budget Office have used all available expertise and information to arrive at that benchmark and it should be allowed to stand, rather than fall under political pressure. I suppose that the political pressure must also have been captioned in the model as well as other vulnerabilities.

In dealing with fiscal prudence, it is also necessary to examine the expenditure profile and reduce wasteful spending like the cost of governance as well as reducing the national debt, particularly the domestic debt. It is gratifying to note that the budget provides for a sinking fund of N100 billion for paying government’s maturing debt obligations ‘and curb the rising debt profile.’ The fiscal incentives seem satisfactory if transparently implemented. Based on the incentives given to commercial airlines, government ought to ensure that airlines are properly regulated as arbitrary increases in airfares negate the existence of regulations in this sub-sector.

The 2013 budget is not pro-poor. It would have been useful to state the items or provide specifics on how this budget would help the poor and greatly curb the rising poverty profile in the country. Another disturbing trend is that according to the MTEF & FSP in 2013, the contribution of the manufacturing sector to GDP would be 3.3 per cent. This would increase to 4.6 per cent in 2015 while building and construction, usually a potent sub-sector, would contribute 1.3 per cent and 1.8 per cent to GDP by 2013 and 2015 respectively. These figures are not encouraging if the economy is to experience structural transformation and be one of the largest 20 economies in the world by the year 2020.  While it is clear that the success of any budget depends on implementation (the country has performed woefully in this regard), for Nigeria, heavy reliance on oil revenue is unhealthy. This source of revenue is exogenous and volatile even as Nigeria has no control over its price and output. It is, therefore, important that the desire to diversify the economy away from crude oil export dependency be taken seriously. The hope is that in the near future, Nigeria would implement its budgets based on non-oil revenues. Budgets are estimates; the devil is in the details.

(Ekpo, a Professor of Economics, is Director-General, West African Institute for Financial and Economic Management, WAIFEM, Lagos.)