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Stalemate Over Budget 2013: Matters Arising – Henry Boyo

Stalemate Over Budget 2013: Matters Arising – Henry Boyo

There are media concerns on the potential adverse impact of delay of budget implementation and the possibility of the Legislature overriding presidential opposition to the 2013 budget enactment.

In reality, late budget enactment has over the years never really affected the disbursement of recurrent expenditure, so long as such expenditure does not exceed the previous year’s recurrent allocations.  Consequently, late budget enactment may in fact only affect the capital budget; nonetheless, the total 2013 capital budget of about N1.5tn (about $9m) can only be an infrastructural palliative when compared with the speculated requirement of over $100bn for the provision and distribution of adequate power alone to consumers nationwide.  Besides, despite the relative paucity of the capital budget, it has become traditional for government’s Ministries, Departments and Agencies to continuously post billions of naira as unspent revenue at the end of each year.  Thus, the present late enactment may not adversely impact implementation any worse than what happened in previous years!

There may apparently also be more to the delayed Presidential assent than the Executive’s earlier reported reservations about late receipt of a clean bill from the Legislature and the later insinuations that the Executive just needed to dot the ‘i’s and cross the ‘t’s before the assent.

Some media reports fingered the zero budget allocations for the Securities and Exchange Commission, the N63bn increase in the capital budget, the Legislature’s alleged inclusion of constituency projects and adoption of $79/barrel crude oil benchmark for the delay.

I recall that in an earlier piece titled “The Return of Arunma Oteh”  http://www.lesleba.com/yahoo_site_admin/assets/docs/27072012p.5264110.doc, we cautioned that “…the legislators may ultimately also see Oteh’s return as unnecessarily provocative and a potential source of attrition and government’s gamble on Oteh’s reinstatement may further assault the integrity of the capital market and ultimately restrain economic growth.”

In the present circumstance, if the Legislature advances its threat to override the Executive’s veto on the 2013 budget, Mr. President may ultimately become wisely constrained to a gentleman’s agreement to quietly ship out the Director-general of the Securities and Exchange Commission to another agency in the near future; in this manner, President Goodluck Jonathan may save face and also avert the unhelpful perception that he does not have the spine to confront the National Assembly.

We may now address the issues of constituency projects and the alleged increase of the 2013 budget by N63bn. In plain language, the Executive contests that the National Assembly has no constitutional power to tamper with the content of the Appropriation Bill.  The National Assembly on the other hand, maintains that the President’s bill has to follow the same process as every other bill laid before the Legislature.  In the event that the Legislature has vested powers to evaluate, amend and pass any bill before it becomes law, it is therefore in consonance with the spirit of the law for Mr. President’s Appropriation Bill to be also subject to the usual legislative process, which may advise omissions or inclusions, as deemed appropriate and agreed  to by both Legislative Houses to any bill before passage.

However, the issue of crude oil budget benchmark is a little bit more complex. On the surface, the Executive projects a conservative and prudent image in adopting the lower crude benchmark price of $75/barrel; its argument is that, if for example, crude oil sells throughout the year above the Executive’s recommended price of $75/barrel, the surplus income will increase our  national reserves!  In addition, in the event that crude prices unexpectedly fall below $75/barrel, the adverse impact of the reduced revenue inflow on expenditure will become less traumatic than if the budget was predicated on a much more optimistic benchmark.

The lawmakers on the other hand argue that deliberate understatement of budget benchmarks around $70/barrel in previous budgets led to the accumulation of huge avoidable deficits in each year’s budget.  In other words, the expenditure budgets generally outstripped the understated revenue projections because of the very conservative budget benchmarks adopted.  The legislature may rightly argue that it does not make sense to fund such resultant ‘ghost’ deficits by borrowing at over 15 per cent interest rates, while accumulating idle reserves from benchmark surpluses with little or no yield.  This argument surely makes sense; however, the legislators themselves may, in fact, be unaware of the destabilising economic implications of spending such increasing dollar revenue realised from the adoption of higher crude price benchmarks!

The reason behind the unexpected negative impact of increasing dollar revenue is the Central Bank of Nigeria’s obtuse monetary policy framework, which substitutes monthly naira allocations at unilaterally determined rates for distributable dollar revenue.  Consequently, the larger the dollar revenue (as in crude prices constantly well above conservative benchmarks), the greater will be the apex bank’s naira creation and ultimately the greater will be the burden of excess cash (excess liquidity) in the system.  Excess liquidity in turn fuels high inflation and interest rates, and further pushes the naira value downwards, with disastrous economic and social implications.  Consequently, from the National Economic Management Team’s perspective, it will be unhealthy for us to earn and spend such increases in dollar revenue because of the attendant problems of excess liquidity, when the higher crude oil dollar incomes are substituted with naira creations.

Thus, both the executive and legislature may mean well, but the truth is that neither position is beneficial to economic growth or the creation of employment opportunities.

It will be difficult for the economic management team to satisfactorily explain the double paradox of rising national debt in the face of excess cash and that of fortuitously increasing dollar revenue and deepening poverty to Mr. President.  However, despite the EMT’s acquiescence to this reality, the contradictions and paradoxes in our economy will only be resolved, such that increasing dollar revenue will bring about improved social and economic welfare, when the CBN stops the poisonous process of substituting naira allocations for dollar revenue and instead adopts the instrument of dollar certificates for the payment of allocations of dollar-derived revenue.

In spite of the foregoing, both the Executive and the National Assembly appear unduly concerned about the contentious unverified extra-budgetary issue of over N2tn, which inevitably will be required to supplement projected total expenditure of about N4.9tn and inadvertently tilt the 2013 budget deeper into deficit; thus making further government borrowing necessary.

Incidentally, the adoption of dollar certificates as suggested above will alter the market dynamics for naira and consequently strengthen the naira; fuel prices will fall as a result, and ultimately eliminate the crippling burden of subsidy. This, sadly, is the road not taken.

 

Henry Boyo (lesleba@lesleba.com)

Read the original article via Punch

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