2021 Appropriation: How ambitious are the real figures?

Can a global economy that is currently facing an unusual liquidity crisis meet the country’s new borrowing appetite? And which asset is the government going to sell? And who has shown serious interest in cashing in for next year’s public spending?

PRESIDENT Muhammadu Buhari, on Thursday, presented an appropriation bill of N13.08 trillion to the joint session of the National Assembly, with a tag line ‘Budget of Economic Recovery and Resilience’.

The President could not have been more apt in his choice of words, considering that Nigeria, like other countries, is crawling out of the ruin of the Coronavirus Disease 2019 (Covid-19) pandemic. He could not have been also more sincere to have admitted that “our economy may lapse into the second recession in four years”.

In the nominal term, the budget is the biggest in the history of Nigeria. Taking the figure on its face value, many people have described the budget as audacious.
But just how daring is it? In naira terms, the budget is about 27 percent higher than the initial 2020 proposed spending. It would be recalled that the initial N10.33 trillion was reversed to N10.8 trillion in the heat of Covid-19, with key parameters adjusted in line with the unavoidable economic reality.
The N13.08 trillion is much higher than even the upwardly revised figures. But that is how far it goes.

In dollar terms (this is the real budget as much of the spending goes into imported goods and services), the 2021 appropriation translates to $34.5 billion. Weighing the current N379/$1 exchange rate against last year’s N305/$1, the 2021 total spending is a mere $0.6 billion (5.8 percent) higher than the $33.9 billion initially budgeted for this year.

Benchmarking the key components that support infrastructural renewal, Nigerians are longing for an “economic recovery” – the theme of the budget – works and housing, the biggest elephant in the room, gets a paltry $1.06 billion; the all-important power is allocated $522.4 million while education, which most important determinant of human capacity building and future earnings, receives $519.8 million.

The blatantly-starved defence will beef up the national armoury and related soft infrastructure with $319.7 million. The allocation to the health sector whose many inadequacies have been exposed by Covid-19 will be tackled with $348.3 million. This particularly stands out as there is a near-zero local content in health sector development. Even the expertise required is almost 100 percent imported.

On per capita spending, the Federal Government will be spending a total of N660 on the health needs of each of its 200 million citizens next year. As for works and housing (which includes all federal roads), every Nigerian is allocated N2,020 just as N1.65 is what it will cost the government daily to defend an individual.  

This estimation, yet, will be adjusted to accommodate the cost of corruption (a major component of the rituals called yearly budget), and how much this will deflate the figures will depend on the propensity to steal and misappropriate, which is on the upward path.

If the contractors and politicians connive to steal 50 kobo out of every N1 allocated to infrastructure projects, for instance, it implies that the real works and housing budget per capita is N1, 010 for the entire year. If the tendency, on the average, is to steal 75 percent from what is available (we have seen worse cases before in any case), the real health budget per Nigeria will come down to N165 for the entire year.

THE 2020/2021 financial year budget of South Africa, the country’s key regional rival with a population of 59 million, is about 3.5 times bigger than that of Nigeria. This implies that it will take Nigeria three and a half years of the current strength to spend the same amount an equally-depressed South Africa will spend next year to get its economy out of the woods.

South Africa was terribly affected by Covid-19, hence its choice to increase the 2019/2020 health budget allocation by three percent to R229.7 billion (an equivalent of $14 billion). This is about 40 times bigger than the federal government’s budget for the same critical sector, even though South Africans currently enjoy better public health infrastructure than their Nigerian counterparts.

While an insignificant part of the Nigerian budget is allocated to recurrent expenditure with the ever-growing loan servicing costs taking the lion’s share, South Africa’s budget breakdowns are a reflection of the country’s realisation that it can only retain its regional and global significance with a productive economy. Its recent allocations to education have also proved its readiness to put the trauma of the apartheid behind and give the black majority the support they need to build their competitiveness.

Even as impressive as FG’s key allocations are, the devil is yet in the assumptions. The revenue projections are benchmarked at $40 per barrel. Oil has traded on an average of below $40 in recent weeks, and the figures keep retreating. The fear of another wave of Covid-19 is a major depressor, with many energy experts saying recovery is not yet in sight.

NIGERIA’s recent years’ budget assumed a very conservative view of oil prices in benchmarking but for once the executive has assumed an extremely optimistic view. Bala Zaka, an energy economist, said it would have been advisable the government took the current price minus $8 to hedge against volatility. But the executive has chosen to hope against hope.

The price is just one of the troubles of the crude export benchmarking.  OPEC quota to Nigeria has hovered around 1.4 million barrels per day in recent months, yet the president picked a figure outside the OPEC range – 1.86 million barrels per day. Another unrealistic assumption!

Agreed, countries have habitually blatantly dismissed the OPEC quota arrangement and oversupplied the commodities. But that has always resulted in price war Nigeria, owing to its extremely high oil production cost, does not have the wherewithals to fight.

Again, the budget is stuffed with a 40 percent deficit – the highest in recent years – the president disclosed it would be funded with three-plugin instruments – fresh borrowings, privatisation proceeds and drawbacks.

Can a global economy that is currently facing an unusual liquidity crisis meet the country’s new borrowing appetite? And which asset is the government going to sell? And who has shown serious interest in cashing in for next year’s public spending?