The Association commends the Federal Government of Nigeria and all its Ministries, Departments and Agencies (MDAs) for the prompt presentation of the proposed 2018 Budget of “consolidation” to the National Assembly in a bid to re-establish the January to December Budget Calendar as well as sustain the growth established from the 2017 budget of “Recovery” and the projected 3.5% GDP growth rate anticipated. This also shows the commitment of the Executive arm to the Executive Order on Budgets, issued on May 18th, 2017. Having perused the proposed 2018 Budget, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) has the following views:
Swift review and passage of the Budget 2018.
NACCIMA commends both the executive and legislative arms of government for this landmark presentation of the 2018 budget in early November. We whole heartedly call for improved transparency, synergy, national interest and speed in its review and subsequent passage. We hope that would provide enough time to all relevant stakeholders and investors to plan ahead.
The Association commends the Federal Government’s intention to continue to allocate at least 30% of its spending on capital expenditure. The N2.43trillion proposed for capital expenditure is 11.5% more than the equivalent approved in the Budget 2017 and 336% more (almost 5 times greater) than the figure approved in Budget 2015. However, the overlapping of implementation period of the capital expenditure in budget 2017 into the 2018 fiscal year due to the late passage of the budget, creates a monetary policy issue. For instance if we take into account the fact that releases on the 2016 capital budget were made up till the 5th May 2017, and assume that the implementation of 50% of capital budget 2017 will overlap into the 2018 fiscal year, this would mean that the Federal Government intends to execute an estimated N3.52trillion in capital expenditure in 2018. Therefore, the Association counsels that the Federal Government considers the monetary policy implications of such expenditure in one fiscal year, and put measures in place to ensure that inflationary trends remain within targeted limits. It is also pertinent to state at this point that swift release of funds and earnest implementation of these projects are critical to improving the nation’s growing infrastructure deficit challenge.
The Association views with concern the Debt Service component of the 2018 Budget, which has grown by 34.26% from the 2017 Budget, a rate of increase which has become more or less constant since 2014 (Note that the debt service component in the National budget has increased by around 33% - on average - every year since 2014). The Association agrees with the view of the Medium Term Expenditure Framework (MTEF) 2018-2020 that
“Although Nigeria’s debt stock places it at a low risk of debt distress, rising debt service payments relative to revenues have become a source of concern as it places a squeeze on government’s ability to fund its expenditure programmes. Due to the decline in government revenues, the debt service payment trend is worrying, and it emphasizes the need for government to grow its revenues and reduce borrowing costs as well as borrowing”.
Given that the rising domestic debt profile was part of a strategy to deepen the domestic debt market and reduce exposure to exchange rate risk associated with debt contracted in foreign currency, the Association counsels that Federal Government reconsiders the debt strategy in consideration that the total debt stock stands at N19.639trillion as at June 30th 2017. The Association also counsels that the Federal Government reconsiders the rebalancing of the debt portfolio from an 84:16 distribution between domestic and external debt to a 60:40 ratio by the end of the 2019 fiscal year (an increase of foreign debt stock by 150% to offset domestic debt) as this significantly increases the economy’s exposure to exchange rate risk.
The Association wishes to note that the Non-oil Revenue projections, which are estimated at N4.17trillion are quite optimistic in comparison with the projections of the MTEF 2018-2020 which projected non-oil revenue at N3.2trilliion. This is particularly a cause for concern, as not attaining revenue projections will further worsen the budget deficit. The Association notes that the actual deficit in 2016 was N2.411trillion compared to the approved budget deficit of N2.2trillion due to low revenues relative to planned spending. Non-oil revenue projections in the MTEF for 2018-2020 are guided by expected growth in non-oil output and improved efficiency in revenue collection.
The projected revenue from crude oil based on US $45 per barrel in the 2018 budget when benchmarked against the price of crude today which is around US $61, signals that a revenue surplus may be imminent if this trend continues. NACCIMA is of the view that this should directly reflect in a reduction in government borrowing. These surplus earnings should be directed at the development of critical infrastructure the intended borrowed funds are meant to address. NACCIMA also anticipates that better monetary policies especially on foreign exchange will bring down the exchange rate from the projected N305 per 1 USD.
The sum of N3.49trillion is proposed for Recurrent (Non-Debt) Expenditure in Budget 2018. The Association would like to point out that despite the gains of the Efficiency Unit which was set up under the Federal Ministry of Finance to reduce wastage, plug leakages and foster greater fiscal transparency, and the Integrated Payroll and Personnel Information System (IPPIS) to automate personnel records and salaries payment process, recurrent expenditure remains on the increase, growing by 16.93% from Budget 2017 and showing an average annual growth rate of 9.2% since 2014. The Association would like to counsel that the Federal Government increases its efforts at ensuring efficiency and cost-saving in order to reduce recurrent expenditure and improve the budget deficit.
Revenue from Tax
NACCIMA anticipates that projected revenue from Companies Income Tax of N794.7bn and Value Added Tax of N207.9bn for implementing the budget will also be sourced by intense expansion of the current tax net to capture defaulting organizations rather than overburden already tax compliant organizations or through ambiguous tax Tax Demand Notices.
Budgetary allocations to key sectors of the economy
NACCIMA commends the increased allocation of N118.98 billion to the Agriculture and Industry sectors of the economy as this is in line with the plan to develop the capacity of the non-oil sector of the economy to achieve the quite positive revenue projections of N4.16tn for the non-oil sector. We however state that these revenues are attainable with the right infrastructure in place as well as disciplined monetary and fiscal policy implementation.
NACCIMA is of the opinion that for recent socioe-conomic improvement in the economy to be consolidated especially with the aim of attaining revenue diversification; considerable investments in agriculture, industrialization, social inclusion, Infrastructural development, investment and export promotion are very pertinent. This can be achieved by proper and timely implementation of the budget’s programmes. NACCIMA will continue to review and monitor the budget implementation process to ensure these sectors receive the required attention and further improve the nation’ Ease of Doing Business processes and global ranking.
IYALODE ALABA LAWSON. MFR, FIoD, JP.
National President, NACCIMA.
10th November, 2017.