After the rot that was the Jonathan years, there was a palpable difficulty understanding the direction in which the Buhari administration was going to steer the ship of state. Again, the “change” mantra weighed heavily on this angst. On the hustings, the All People’s Congress (APC) party indicated that once in office the nation would experience a rapid recovery from the Jonathan government’s-induced stasis. Falling oil prices on the global markets was a clear source of anxiety. As indeed was the fiscal dependence of the economy on oil export earnings.
Still, most simply supposed that then General Buhari’s (Rtd.) commitment to changing the way the country is managed signaled a readiness to address the diverse impediments to the proper functioning of the economy through a roots-and-branch approach. Instead, he dithered, and took the better part of an eternity to get his cabinet in place. Worse, he seemed to favour statist policies whose deployment underscore naught but a superficial familiarity with the symptoms of the national ailment. For scarcity, he abjured the need to strengthen the mechanisms that make it easier for each one of us to choose; appearing to prefer instead administrative measures. Could the fact have been lost on the incumbent president that these measures reinforce the state as provider of choice at a time when the national requirement is for the state to get out of our faces and backyards?
The release, last week, of the 2016 – 2018 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) finally offered much-needed insights into how the Buhari administration conceives of the national challenges before it, and hopes to proceed rectifying these. Run a cursor through the document, and it skirts all the main shibboleths. Moreover, the Buhari government is still committed to stimulating “domestic enterprise by creating a friendly business environment…”.
Look deeper though, and a couple of glitches look like being writ all over the document. Is a US$38 per barrel oil benchmark realistic? Against the Jonathan administration’s assumptions for 2015, it was argued that a US$53 per barrel benchmark was too optimistic when global prices were nudging US$40 per barrel. Given “several shut-ins of some wellhead platforms as well as shutdown of some oil pipelines breached by oil vandals”, the 2015 budget’s projection of oil production levels (2.2782mbpd) were no less rosy.
Today, oil prices have already touched the new benchmark, with Goldman Sachs, a global investment bank, predicting near-term prices of around US$20 per barrel. Supposing that government is somehow able to plug the leakages in upstream oil and gas exploration and exploitation, and we meet the 2.2mbd estimated by the MTEF/FSP this year, how do we resolve the demand question? In other words, even if we get the supply-side concerns right, can we unilaterally boost demand for our oil exports? The transition of the Chinese economy away from investment-led growth to demand-led growth has been indicted for the dismal performances of commodities last year. Most analysts expect this transition to weigh further on global demand going forward.
If US$38pb oil next year is roseate, then the 2017/2018 numbers are no less so. And that is the main drawback of the MTEF/FSP document: too many exogenous variables ― most of them in the air; and even more iffy assumptions. It is hard, for instance, to see how non-oil revenues would grow in a rapidly decelerating economy. At a point, the new focus on solid minerals as part of the planned diversification of the economy’s revenue base approaches the comical: oil’s crisis is really a global commodity one. So not just are we turning to economic sectors whose fortunes are positively correlated with crude oil, but whose prices are likely to remain in the doldrums for a while yet.
Why, in addition, are value added tax (VAT) receipts expected to go up next year with most businesses all in the red, or quickly headed that way? True, government’s “coordinated border management strategy as well as reinforced anti-smuggling activities through intelligence gathering and networking” may have dividends to deliver, but I do not see “aggregate national consumption” growing even as both the public and private sectors appear close to retrenching. Indeed, concerning VAT, the MTEF/FSP document admits that the 2015 budget numbers were exaggerated, based as it were on the expectation of a 10 percent rate rise.
This leads to consideration of how the budget’s funding gap is to be made up. The MTEF/FSP proposes a budget of N6.04tn on revenues of N3.82tn. Not just is the resulting deficit (N2.22tn) below the 3 percent of GDP prescribed by the fiscal responsibility act, but it is also not that much of a burden in the light of a debt-to-GDP ratio currently at 12 percent. However, since you service debt out of one’s assets only when bankruptcy looms, the more useful measure of the sustainability of the country’s debt is our debt service-to-revenue numbers. With revenues heaving southwards inexorably, this is not as good looking as the debt-to-output numbers indicate.
Beyond this immediate fret-points, I am uncertain which is the larger cause for worry. The grab bag of nice initiatives that still need to be funded ― including protection for the poor and most vulnerable? Or the fact that the document’s allusion to the market and foreign investors does not sit well with the Buhari government’s current “body language”.
How is a conditional cash transfer scheme to work without data? Beneficiaries have got to be means-tested, at the very least. How long before we can build the infrastructure that helps collect and interrogate the requisite data? Then again, the N500bn bill for the social security initiative is so not enough given our acknowledged levels of need. And so we must sequence deployment. Unfortunately, the document fails to give a sense of what this would look like. To tell the truth, this inadequate budget and sequencing challenge presents itself all over the document. At its most insightful, the document describes a “phased Social Welfare Programme”. But “phased” and “sequenced” are neither synonyms nor interchangeable.