People & Money

Why I am not piqued by Budget 2022

Federal budgets had begun to precipitously run ahead of themselves, especially by the mid-1980s.

The Buhari government has since coming into office in 2015 spent more than it has budgeted for every year. The skew of the budgets have not favoured sectors that boost domestic productivity ― going instead to servicing debts and paying salaries. Not surprisingly, the assumptions of these budgets have been consequently heroic. Thin this regard, the 2022 budget is no exception.

It seems like aeons ago, now, when our governments’ tax and spending plans mattered that much. Not just that folks put everything on hold to listen to the Head of State’s budget speech. At the federal level, few commentators took a government seriously that planned to spend more on defence than on health and education. Yet, these performances mattered far less than the audience responses to them suggested ― few governments (military or civilian, federal or state) squared this circle properly. Still, even under military governments, the annual budget exercise became a study in commitments to bettering the lot of the people. Okay, so the descriptions of these budgets suffered massive inflation, eventually reaching their apotheosis in Cross River State’s grandiosely christened affairs.

Also Read: Nigeria’s 2022 Appropriation Bill: Another Budget of Fanatical Expectations

In other areas too, federal budgets had begun to precipitously run ahead of themselves, especially by the mid-1980s. The oil price on which these spending plans were laid was the biggest sign that our budgets and the processes by which they were arrived at had become footloose. That is aside the other inconvenience of the details of most budget packages being finally agreed well past their delivery dates. The biggest contributor to government’s dollar earnings, both the volume of crude oil that the country sold and the price at which we could sell it for, became the main anchor of national spending plans. The larger both components, the more the expected revenue for each plan period, and the more successful each budget looked.

Over the years, though, the global oil price has succumbed to a historic combination of a supply glut (from new producers, including from the U.S.’s shale fields coming into the market) and easing demand (from more energy efficient production processes globally ― including, of recent, rapid gains in the so-called energy transition). On the other hand, inadequate investment in the domestic oil and gas space (partly the consequence of an uncertain investment environment created by the long-drawn out passage of the Petroleum Industry Act) has limited the amount of the oleaginous stuff the country can produce. All of which meant that by the early 1990s, the oil production and price estimates on which successive federal budgets were based had begun to diverge from reality. These unrealistic estimates in turn supported Panglossian revenue numbers that may have helped all the budgets that they were a part of look attractive; but could barely conceal the fact that we (as an economy) were spending far more than we were earning.

…the Obasanjo administration recognised that a huge sovereign debt burden was a limitation to the private sector’s flexible supply responses. But by far the administration’s biggest contribution to sanitising the fiscal planning space was its introduction of an oil price fiscal rule for the budget.

The genius of the civilian Obasanjo regime was to understand that the ensuing debt overhang was restricting the economy’s growth options. More-so, when a key plank of state policy was to move the economy very quickly from a public sector-led growth model to a private sector-led one. In this reading, the Obasanjo administration recognised that a huge sovereign debt burden was a limitation to the private sector’s flexible supply responses. But by far the administration’s biggest contribution to sanitising the fiscal planning space was its introduction of an oil price fiscal rule for the budget.

This allowed us to fix a price for our major export earner in the budget, and to parlay earnings above that price into a rainy-day fund (the Excess Crude Account created in 2004). One could not put a price on the predictability that this brought to the domestic planning chain. That is until the commodity supercycle broke in 2014. Plummeting oil prices then rendered subnational governments’ reluctance to play by the oil price fiscal rule moot. Caught between spendthrift policies and dwindling revenues, the Jonathan administration scavenged for funds from whatever sources it could find, laying waste to the country’s general reserves, and plundering the balance on the rainy-day fund.

Also Read: Nigeria to Increase Spending in 2021, Maintains Budget Deficit

…despite the strictures of the Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP), our budgets in the last decade have become exercises in wish-fulfilment. Take the 2022-2024 MTEF/FSP, for example. You would not tell from the resulting 2022 budget that the MTEF/FSP…

Our budgeting process has not recovered since. Arguably, it has made the least progress clawing back some of the gains around transparency, which the country made up until 2007. Which is why, despite the strictures of the Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP), our budgets in the last decade have become exercises in wish-fulfilment. Take the 2022-2024 MTEF/FSP, for example. You would not tell from the resulting 2022 budget that the MTEF/FSP, according to an official source, “provides analysis of key global and domestic macroeconomic trends of recent years, fiscal effects, policy responses, future policy direction and macroeconomic projections and assumptions underpinning the medium term fiscal framework”.

The Buhari government has since coming into office in 2015 spent more than it has budgeted for every year. The skew of the budgets have not favoured sectors that boost domestic productivity ― going instead to servicing debts and paying salaries. Not surprisingly, the assumptions of these budgets have been consequently heroic. Thin this regard, the 2022 budget is no exception. Small wonder that it has not elicited much commentary, even as the government continues to shift the goalpost around it.

Related Articles

Back to top button
Arbiterz

Subscribe to our newsletter!

newsletter

Stay up to date with our latest news and articles.
We promise not to spam you!

You have successfully subscribed to the newsletter

There was an error while trying to send your request. Please try again.

Arbiterz will use the information you provide on this form to be in touch with you and to provide updates and marketing.