President Buhari and his team of ministers have touted the 2016 budget as the document that will change the fortunes of Nigerians. Sadly, the reality is far different. The 2016 budget, with all its controversies, will not have any more significant impact on the economy different from any budget before it.
Even without the many controversies dogging the budget, the fundamentals of the budget are faulty. The legislature has approved N6.6 trillion based on an exchange rate of N199 to the USD when 70% to 80% of the economy is already operating on an exchange rate of N322 to the USD.
This is significant because at the exchange rate of 199/USD, the budget is $33 billion but at N322 the budget falls to $21 billion, about 36% less than the actual approved expenditure. This has significant implications especially for capital expenditure as many contractors will find out that their quoted contract needs to be revised upwards in the face of the higher cost of inputs, which is already reflected in the rising inflation, which just hit 12.8% in March.
The revenue side also has an issue. While the budget has been based on an average crude oil production of 2.2 million barrels per day, the vandalisation of the the forcados pipeline since 21 February this year means that Nigerian has lost an average of 249,000 barrels per day since the explosion occurred.
Repairs on the pipeline is expected to be completed in June by which time a significant damage would have done been done to Nigeria’s crude oil revenue projections in the 2016 budget. This is compounded by the fact that crude prices has remained largely below the budget benchmark of $38 for most part of this year already.
Non-oil revenue projections are also not looking good. The Nigerian Customs Service (NCS) announced recently that it lost N230 billion in the last quarter of 2015 due to the foreign exchange policies of the Central Bank of Nigeria (CBN). The criticised foreign exchange policies of the CBN are still in place, so the expectation is that the losses will continue into the first quarter of this year and beyond as long as the foreign exchange restrictions are in place.
Even corporate income tax is expected to take a hit. Across all sectors of the economy, many companies have seen a sharp decline in revenues and profits. Consequently, corporate tax payments due to the FG are expected to see a significant drop in 2016. This basically means that the government revenue project of N3.86 trillion as contained in the 2016 budget will not be met.
There is already evidence that government revenues are already in trouble. The Secretary to the Government of the Federation (SGF), David Babachir Lawal, on 12 August disclosed that government is already borrowing an average of N600 billion monthly, in order to augment payment of salaries. At this rate of borrowing, if it continues for the rest of the year, the government would have borrowed N7.2 trillion, 109% of the 2016 budget just to augment the payment of salaries, without taking capital expenditure into consideration.
But it is not all gloomy. There is some hope that the government recent imposition of stamp duty could rake in some billions to cover up for lost revenues from other sources. The Treasury Single Account (TSA), which Buhari says has at least N3 trillion, could also come in handy. Then China is also promising a helping hand with capital expenditure with its reported offer of $6 billion credit line to the Nigerian government to invest in infrastructure. The Federal Inland Revenue Service (FIRS) is also looking at an aggressive expansion of the tax net.
However, the impact of these alternate sources of revenues will not be enough to save the 2016 budget. That impact will come in 2017 and seen possibly in 2018. For now, the 2016 budget may just be as good as the paper it is written on and nothing more. It is practically “Dead on Arrival.”