#BUDGETSCAM: Understatement of projected revenue in 2013 budget

In the light of the usual extended recess during the EI-del Kabir, Christmas and New Year celebrations, the National Assembly may have, possibly less than two months within which to consider and approve the 2013 budget proposal, which President Goodluck Jonathan laid before it in October.

Instructively, in successful economies elsewhere, budgets would traditionally be laid before parliament at least four months before the New Year, to ensure that minute details and implications of budget proposals would have been thoroughly assessed without the burden of time pressure.  However, the National Assembly’s current insistence on full implementation of the 2012 budget before its approval of the 2013 projections may suggest that, as in the past, legislative endorsement may not come until sometime in the first quarter of 2013.

Incidentally, the proposal submitted by President Jonathan makes no apparent provision for the payment of the controversial fuel subsidy. Indeed, there is no indication that the contrasting subsidy figures from critical government agencies on subsidy values have been reconciled.  In other words, in view of subsidy payments of over N2tn in 2011, we may assume that Mr. President may have adroitly subsumed subsidy payments as a first line charge on the total revenue projection of N10.84tn in 2013.

Indeed, it is not clear how the Executive arrived at the projected total revenue figure of N10.84tn, as prospects of revenue inflows from government income streams suggest that the 2013 revenue projections may be grossly understated.  Incidentally, oil revenue traditionally contributes over 80 per cent of totally collectible federal revenue annually; this should amount to about N8.64tn of 2013 total projected revenue.  In other words, other sources of internally-generated revenue may just account for the balance of about N2.2tn.

This relatively paltry figure would appear to be a contradiction of the vastly improved performance of the Federal Inland Revenue Service, which reports suggest may actually surpass the N5tn threshold this year.  Incidentally, FIRS confirmed actual revenue collection of about N4tn by September 2012; so, a 2013 projection of N5tn total revenue should be quite feasible.  In addition, from available reports, the Customs Service revenue collection has also exceeded N400bn as of August 2012.  This may suggest that all things being equal, we may also confidently expect up to N500bn revenue contribution from the Customs Service alone in 2013.

In summary, therefore, total revenue projection for 2013 should be over N14tn, made up of N8.6tn (about $50bn) from crude oil sales; N5tn IGR and N500bn Customs duties and levies.

Indeed, the Nigerian National Petroleum Corporation’s reports of crude output often in excess of 2.5 million barrels with crude prices hovering at an average of $100 per barrel in spite of world economic downturn in 2012 may suggest that the above crude oil revenue projection of N8.6tn may still be an understatement.  In other words, average crude price of $100/barrel may swell actual crude oil revenue by up to 20 per cent above the conservative benchmark revenue projection of $75/barrel.  Thus, such a plausible scenario should add at least N2tn to the crude oil revenue projection of N8.6tn.

Consequently, consolidated revenue expectations should exceed N16tn instead of the very conservative estimate of N10.84 in the 2013 Appropriation Bill. Instructively, the banks have been beneficiaries of over N3tn from the Central Bank of Nigeria’s bailout funds and Asset Management Corporation of Nigeria support.  Indeed, no other sector, including agriculture, health, education, etc, has been so favoured in recent years.

Inexplicably, the real sector continues to contract and the Chambers of Commerce and Manufacturers’ Association of Nigeria continue to decry the oppressive burden of cost of funds at over 20 per cent.  The masses have also not fared better, as the CBN’s extremely high Monetary Policy Rate of 12 per cent continues to upwardly drive cost of funds and inflation, while the generality of Nigerians have lost additional purchasing power from their already meagre incomes as a result of inflation.

Consequently, critics insist that the commercial banks are the main beneficiaries of deliberate understatements of projected revenues in annual budgets over the years.

Indeed, in spite of the anticipated savings of 30 per cent of operational costs from the CBN’s cash-lite exercise, the banks still appear unable to support the real sector.

In any event, even if we accept President Jonathan’s total projected 2013 federal revenue of N10.84tn as fairly accurate, the component of N3.89tn total revenue available for the Federal Government budget would also seem to be a gross understatement.  The constitutional revenue sharing formula of 52 per cent for federal, 26 per cent state and 22 per cent local governments would suggest that federal allocations should be a minimum of about N5.5tn, instead of N3.89tn indicated in the 2013 budget statement.

Thus, in the event that total federal expenditure projection is only N4.92tn for 2013, we may, in fact, actually have a budget surplus of over N500bn instead of the apparent deficit of almost a trillion naira in Mr. President’s budget 2013 Appropriation Bill.  Thus, a more realistic revenue projection would eliminate the need for deficit financing, reduce the debt burden, and also reduce debt service charges by over N150bn, if we assume the average cost of 15 per cent for funding budget deficits!

Incidentally, the allocation of N591.76bn for debt service accounts for over 12 per cent of the 2013 expenditure budget, and remains the highest sectoral allocation well above the N426bn allocated for education, N279bn for health, and the paltry N81bn for rural development and agriculture (which presumably also includes provision for water resources).

Paradoxically, government’s heavy borrowings have not brought any commendable  improvement to the welfare of Nigerians; that notwithstanding, the commercial banks, which appear to be government’s favourite children, now post enviable profit figures, which, according to Aig Imokhuede, Managing Director of Access Bank, may exceed 10 per cent of the compounded profit figures of all European banks this year!

However, in the light of the apparent reluctance of banks to provide low-cost funds to the real sector, Nigerians may wonder about the source of these huge bank profits.  The answer to this, of course, is not farfetched; why, for example, would anyone expect banks to abandon the juicy yields of between 12 and 17 per cent for government’s risk-free borrowings for the sake of the real sector with its attendant high risk of default, due to infrastructural challenges and cost of funds in excess of 20 per cent?

– by Henry Boyo