budget should be thrown into the waste paper basket. It can no longer
serve as a guide to what citizens can expect of the Federal, States and
Local Governments this year.
The Finance Minister’s admission, two days before the
President addressed the world on his first year in office could not have
come as a surprise to economists, finance experts, accountants and even
those who have a good grasp of simple arithmetic and can think deeply.
If ever there was a budget that was doomed even before it was written,
the 2016 budget was it.
President Buhari First, it started far later than any other budget in living memory. The budget that was to be laid before the National Assembly, before December of 2015, was not even started until November by a new set of economic managers with no previous experience at the top of the Federal government. There is no need to recall how that occurred. Even the honest members of this administration must admit it was rush work and the repercussions were soon to be felt. Second, there was even no unanimity about the method to be adopted.
The Vice President announced Zero Based Budgeting to a Federal civil service that had never practiced it and expected great results. In the end, a mixture of methods were used and the mess created by that was shown at the National Assembly hearings as Ministers and Agency heads embarrassed themselves and government by disclaiming entries in their budgets.
Third, there were charges regarding padding of budget. The Minister of Finance had earlier bragged that there was no way the budget could be padded. The Minister of Information pronounced that there was no padding. The President went all over the world lamenting padding and promising to punish the offenders. We are in June and no single person had been identified as the one responsible for padding. Yet, precious time, which was not at the country’s disposal, was wasted on the matter. However, all those pale into insignificance when compared with the failure of the President’s Economic Management Team, PEMT, to undertake, at least monthly, a review of the forecasts for the economy which is likely to go into recession. Even before the National Assembly’s approval of the budget, elementary arithmetic points to the fact that a proposed N6.0trn budget meant revenue generation of N500bn per month. Using the monthly federally distributed revenue as guide, the following picture emerges. With only four months gone in the year, the country is already experiencing N665bn shortfall in revenue or 34 per cent of what was budgeted. To catch up for the rest of the year, revenue for each month must reach at least N521.25bn. That is where the role of honest forecasting, instead of mere book-keeping is essential. Forecasting forces economic managers to ask the questions: in N521bn per month possible? And, if not, what should we plan to do? Mrs Adeosun in that report had made it clear that prioritization was important. When she said “So what we are doing is project first”, she is only addressing half of the problems that arise when actual revenue falls far short of the budgeted revenue.
Even prioritization of projects requires a fairly good idea of what revenue might be available in the next eight months. Otherwise a lot of abandoned projects would occur.
Now, let us return to the figure above to illustrate how financial forecasting can help governments to avoid getting into trouble in the rest of 2016. Earlier in the year, the Minister had disclosed that the Federal government’s wage bill is N166bn. In March 2016, the Federal government would have received N155.48bn, and in April N140.92bn; meaning that government would have had to borrow N11bn and N26bn in those two months just to pay salaries. Where then are the funds for projects coming from? As if that is not depressing enough, the news from the Ministry of Petroleum adds another tranquillizer effect to the outlook for the balance of 2016. The budget called for oil exports of 2.2 million barrels per day. At the moment, at least 800,000 barrels per day is lost on account of militants’ action.
That is 36 per cent of projected oil revenue which the country might not receive in May, June or even until December unless a truce is negotiated. Furthermore, there are signs that our failure to export might result in permanent patronage by some customers to other countries.
The current rise in the price of crude globally might reduce the loss we suffer, but it cannot totally reverse the trend downwards. Obviously, the forecast for revenue allocation for May would be for a figure lower than N271bn for April which is the lowest so far in more than twelve years. With so much deficit racked up in the first five months, what are the prospects for the rest of the year? The brief answer is: very bleak.
To start with, all the talk about diversification of the economy and return to agriculture as the basis of our economy will remain nothing but shadows of words. In fact, this might also be the worst year for agricultural production in a long time.
Mrs Adeosun pointed to the late delivery of fertilizers to farmers this year as a result of N60bn owed to suppliers by Jonathan’s administration. By the time the fertilizer arrives, it will be almost useless to the farmers…