2016 Budget: It is Time for the Details, By Oluseun Onigbinde

Six months have been spent and if you adjust the time for politicking in 2019, Mr. President has three years to go. Fighting corruption (without a coherent plan yet) will be great to optimise current revenues and spending but this administration needs bigger thinking to harness revenue and meet the huge burden of infrastructure and its major promises namely: A N5,000 payout for millions of poor citizens, a feeding programme for school children, allowance for unemployed youths, bulk purchase of agricultural products, large-scale infrastructure projects.

As at today, in line with the Fiscal Responsibility Act, President Buhari should have presented the Medium Term Expenditure Framework and 2016 budget. This fiscal document will show how he intends to expend resources to fulfill his welfarist goals. During the campaigns, President Muhammadu Buhari and his party, with little care for economics, made promises that will require at least N60tn to fulfil. With slipping oil prices and a shameful non-oil tax to GDP at 4.6 percent, President Buhari obviously needs to conjure magical powers to find such sums to fulfil his scale of promises.

With the elections over and governance expected to start, it is shameful that Nigeria cannot boast of a N100bn capital project executed by the Federal Government in 2015. Most budget experts expected a supplementary budget to be presented immediately. After the first five months of the year lost to politicking, the next five months has shown no clear fiscal policy direction to guide investors, situation analysts and citizens. The current administration has hinged its policy anchor on the 2016 budget, the single bullet that will knock off the pessimists. It is baffling to note that ministers who are key to the implementation of the budget are yet to fully assume office, which could further delay the budget process.

However, one must ask: what magic does the 2016 Budget hold? What will it do differently in an era of low oil prices, especially when fiscal initiatives to scale our tax revenues are still unclear to citizens? There has been a recent report that the 2016 Budget will be N8tn and there are still no details to ascertain how this will be funded.

To truly dissect the budget, one needs to understand the current structure of the FG budget, based on recent budgets. The expenditure component is divided into two – recurrent and capital expenditure. The recurrent expenditure are compulsory payments for the state; it has to do with salaries and pensions of workers, transfers to key government agencies, interest payment to bondholders and the overhead costs of running government agencies. The table below shows a typical FG expenditure if we conservatively project based on recent data in the last three years:

Estimated Revenue and Expenditure Patterns based on recent trends

Based on my calculation above, there is hardly any way that the Nigerian government won’t need N3.6tn in a year for recurrent costs only, unless it sacks workers or default on debts. The table also shows that there is a shortfall of around N700bn to even meet recurrent expenditure. Note that we have not even included any welfarist plan of the All Progressives Congress (APC) nor added any capital expenditure plan such as East-West Road, counterpart funding for 2nd Niger Bridge, Lagos-Ibadan Expressway, Calabar-Uyo Road and other pressing infrastructure needs. FG will need to borrow at least N700bn to even meet its recurrent expenditure. Currently, Nigeria has borrowed at least N880bn to meet its expenditure, mainly for recurrent costs. How long will this continue?

President Buhari got the Treasury Single Account (TSA) initiative absolutely right, though I have strong reservations on the charges remitted to the collection platform which at such scale needs to be revised downwards. However, the TSA presents a huge opportunity for the Federal Government to gather its resources in a single basket and optimise efficiency.

The gains expected from the anti-corruption campaign of this administration will be critical to changing this metrics. Most of them will have to do with re-negotiating oil contracts which is more difficult in a depressed oil market; scaling the tax revenue; expanding the tax bracket with rigorous mining of inter-agency data and also efficient gathering of revenue from independent and semi-autonomous agencies through the Treasury Single Account.

Revenue from the oil industry does not look like an area to place so much hope on, in the short-term. There have been ideas on selling Nigeria’s Oil Joint Venture equity to raise $30bn, but will that be rightly priced in these uncertain times in the oil industry? The real gains will be found in quick and clear tax reforms; the ability to enable efficient collection and also widen the tax bracket. FG benefits mostly from the Company Income Tax and it is time they looked at how to expand the bracket and double that in the short term. This is where the leadership of Babatunde Fowler comes to play.

Most of the tax reforms will come with a proper dissection of our GDP. For instance, Agriculture has the lowest VAT collection rates relative to its economic contribution, donating 0.11 percent to total VAT, but 18.45 percent to GDP. The Nigerian movie industry, as the world’s 2nd largest, holds significant opportunities for VAT but we have not cracked the code. Beyond extracting efficiency from the current untaxed production, there is a huge need to create new growth poles in the agricultural value chain, mining, tourism and manufacturing. Without a concerted and clear plan understood by the public, Nigeria will keep lamenting on the low oil prices and how its current downturn has shortened its destiny.

President Buhari got the Treasury Single Account (TSA) initiative absolutely right, though I have strong reservations on the charges remitted to the collection platform which at such scale needs to be revised downwards. However, the TSA presents a huge opportunity for the Federal Government to gather its resources in a single basket and optimise efficiency. Independent Revenue Agencies profiting from the loophole in the Fiscal Responsibility Act known as “operating surplus” have for years shortchanged the treasury with poor budget oversight, high operational costs and weak audit systems. Although over 300 agencies including NNPC generate trillions yearly, they remit an average of N300bn as surplus to FG in a year. The TSA represents the opportunity for FG to have more oversight on their budget and efficiently allocate capital. It is also time to put their budgets in the public and truly have a comprehensive figure for the Federal Government budget.

President Buhari does not have an eternal mandate. He needs to move fast with bigger thinking for a sustainable legacy. It is not a huge burden to combine proper visioning of a progressive country with fighting corruption. In these grim times that beg urgent attention from highly expectant Nigerians, Mr. President, it is time for the details.

The Treasury Single Account might be biggest factor in raising the revenue profile of the FG, as expanding the tax revenue is not a one-year sprint. This might be the biggest opportunity in 2016 if properly managed and independent revenue agencies are sweated to perform. Though TSA has potential for huge gains, it is still hard to fathom how FG will present a N8tn without raising the budget deficit from N1.075tn to N4tn. The budget needs to consider realistic expectations.

Six months have been spent and if you adjust the time for politicking in 2019, Mr. President has three years to go. Fighting corruption (without a coherent plan yet) will be great to optimise current revenues and spending but this administration needs bigger thinking to harness revenue and meet the huge burden of infrastructure and its major promises namely: A N5,000 payout for millions of poor citizens, a feeding programme for school children, allowance for unemployed youths, bulk purchase of agricultural products, large-scale infrastructure projects. We have a shortcut which is to keep accumulating debts, placing interest burdens on future revenues. The last administration did that by raising debt from N7.5tn to N12tn without any tangible interest-yielding infrastructure.

President Buhari does not have an eternal mandate. He needs to move fast with bigger thinking for a sustainable legacy. It is not a huge burden to combine proper visioning of a progressive country with fighting corruption. In these grim times that beg urgent attention from highly expectant Nigerians, Mr. President, it is time for the details.

Oluseun Onigbinde is the Lead Partner at BudgIT, a civic organisation pushing transparency and accountability in Nigeria.