Budget 2024 and ancillary issues

As you are reading this, the discussion on the 2024 Federal Government budget at the National Assembly is already at an advanced stage. We were informed that there is a deadline before December 31, 2023. Yet, I read somewhere that the budget presented lacks the required details. The scenario reminds me of the antics of some undergraduate students who deliberately delay the submission of their final year projects to their supervisors but turn up to submit when a deadline is given, pressurising the lecturers to grade the projects, and with the expectation of very good marks. They do this to cover up acts of plagiarism, contractor-generated projects and other unholy acts. At the last minute of submission to the department, they go about explaining to those who care that the supervisors do not want them to graduate! Cheap and very damaging blackmail.

So, in this case, the executive arm of government took its time to prepare a budget ‘lacking in detail' and wanted the legislature to rush through the legislative stage to overlook mistakes and get authorisation for spending. While not condoning the delay in budget consideration, the legislature needs to take its time to invite the ministers concerned to provide the required details before final decisions are taken.

The preamble is necessary because we must start doing things the right way to grow democracy. I can see some reasonableness in the budget presented by the President. That is partly deliberate and partly by force of circumstances. It has been quite a long time since allocation to capital expenditure takes some significant share of our budget. An allocation of N8.7tn to capital expenditure and N8.2tn to debt servicing is commendable. But it is still a proposal.

Despite the borrowings and supplementary budgets in 2023, only a little above half of the budgeted N21.83tn have been expended by the end of the third quarter of the year. Realising that the sources of loans are drying up and becoming uncertain, the current budget is deliberately less dependent on loans. The shift is now on taxes as a major source of revenue. But it should be production as the major source of revenue because tax, like saving, is a derivative of revenue which itself is derived from production. So, a focus on tax rather than production can kill production.

In advanced economies, the governments give priority to production and consumption to generate taxes as revenue. They give all sorts of incentives to producers, including energy tax, to assist in cost reduction, which also invariably reduces prices to consumers. They watch consumer spending, particularly during a recession or tough economic times. When consumer spending starts rising, they know producers will produce more outputs with resultant growth in employment and income which are then taxed to raise revenue. The process leads the economy out of recession. Our policymakers need to know what is going on in those countries rather than relying on instructions from the World Bank and the International Monetary Fund.

Our investors are operating in an environment that is not competitive with high costs of energy, transportation, raw materials and borrowing due to high-interest rates. So, the manufacturing or industrial sector generally deserves some subsidy regime that may not be directly financial but in kind. In giving whatever subsidy, however, they should be made to know, through the Manufacturing Association of Nigeria for example, what the government is offering, and the government must know what they intend to offer in return.

Back to the expenditure side of the budget, screaming headlines indicate that defence, education and health are the top priority sectors with allocations of N3.25tn, N2.18tn and N1.3tn respectively. Of course, infrastructure also has N1.32tn. One is interested in the allocation to administration with the overblown administrative machinery the President put in place and the avoidable crowd following the presidency during travels. The budget is not so clear about the allocation to the sector. Unfortunately, expenses on administration are always on the first-line charge which implies that the sector has overarching priority over other sectors.

The key indices, referring to the fundamental plank or framework upon which the budget estimates rest, are fairly justifiable but have some serious implications. The exchange rate of N750 to a dollar implies that the naira is implicitly devalued to aid in monetising the oil money for budget spending. The implications for the importation of raw materials for production and consequently on domestic prices should not be ignored. The need to reform and implement national policies on the production of alternative raw materials for domestic production is now very important.

The adopted price of $77.96 per barrel of oil is not far from the current crude price of $79.90 per barrel. But we have seen the price decrease below $50 per barrel during the year! More appropriately, do we still have revenue from oil given that the product was sold upfront by the Nigerian National Petroleum Company Ltd? The legislature must be sure of the situation in considering this aspect of the budget. What roles will fuel from the Port Harcourt refinery, Dangote refinery and the private modular refineries have on the oil sector production and prices in the course of the year? This is part of the details required in the budget. In supplying crude oil to the Dangote refinery, other refineries should not be deprived of their share to promote competition rather than monopoly in the sector.

The highest crude oil output in 2023 was 1.3 million barrels per day and the expected 1.78 million barrels per day in the budget may not be far-fetched and could be more if we can reduce oil theft and accommodate those we tag as illegal refineries. Accommodating them, with an appropriate framework, as the small-scale enterprises of the oil sector producers, will go a long way to reduce oil theft and boost oil production, spend less money on security in the sector and prevent further oil spillage.

The projected growth rate of 3.76 per cent from the current below 3.0 per cent, and reduction in inflation to 21.4 per cent are achievable if domestic production is encouraged. Every state needs to start contributing to the outputs. Some states are about spending money and borrowing, not generating output. This has to be reversed now. There is no state that is not endowed with some minerals or even soil for agriculture.

Poor remuneration has a way of reducing productivity and promoting indolence, corruption and absenteeism. Nigeria pays one of the lowest wages in Africa and labour productivity is also one of the lowest. If budget implementation is starting in January, why would the already underpaid workers have to wait till a later date before an increase in their wages is effected? It implies that improved productivity will be delayed. More importantly, there is the need for effective demand to engineer production. Increasing the minimum wage now will aid production and economic growth. It is part of the economic intervention package.

Let us now move from fiscal policy to monetary policy. The monetary authority feels there is too much money in the hands of the citizens which is causing inflation. Inflation in Nigeria is not demand-pull but cost-push. The cost of production is too high arising from those items raised earlier, namely the cost of power, transportation, high-interest rates or cost of borrowing and shortage of goods from low or no production. What does the Central Bank of Nigeria research department output say?

If the CBN record shows a high level of money supply in the economy, the money is in the hands of corrupt politicians, civil and public servants and their cohorts, as well as speculators in the foreign exchange market who cannot deposit such money in the banks. The kind of tattered currencies circulating in the economy these days can cause epidemics. It indicates that money in the hands of the public is small. Let us pray against currency epidemic!

For the bank to continue to raise interest rates with the hope that it will encourage savings or because that is what they are doing in other countries is like taxing producers. In advanced economies, they raise interest rates for two reasons. High-interest rates can encourage saving and encourage the inflow of capital from other countries or prevent outflow from the domestic economy. This happens when the currency is tradable or a key currency. Naira is not in that category. Let us not mimic what happens elsewhere without research evidence.