Reducing govt spending not feasible – Akabueze
Reducing govt spending not feasible – Akabueze
In this interview, the Director-General of the Budget Office of the Federation, Ben Akabueze, discusses the 2024 budget with EDIDIONG IKPOTO, highlighting how low public revenue is affecting the country’s economy
For decades, Nigeria has been operating deficit budgets, financing the deficit through debt. How can we reverse this negative trend?
The key is to generate enough revenue to meet our needs. We are not currently there.
What are the bottlenecks that militate against our ability to generate revenue at optimal capacity?
The bottlenecks are many. We have, first of all, a low willingness to pay taxes in Nigeria. We also have institutional problems. In South Africa, in 2022, they collected N26tn in Personal Income Tax. Our total tax receipt that same year across various tax categories was just half of that and yet we have a larger economy. We are three times their population.
So, there is a low willingness to pay taxes, and far too many people are not paying taxes. So, in order to address this, you have to create structures that make it difficult for people to evade taxes. In other countries, like in the UK, they say that there are only two things that are certain in life — taxes and death. Here, people actually go through a whole lifetime without paying taxes.
You recently said that contrary to popular perception that Nigeria is spending too much money, we are not spending as much as we should. Why should we spend as much when we are not raising adequate revenue?
Whether you have revenues or not, there is a minimum expectation that citizens have from the government in terms of delivering public goods and services. If the government woke up and said that it would not construct any roads because it had not collected enough revenue, the people would not accept that. So, the government has to strike the right balance to be able to deliver a minimum level of public goods and services while trying to fix its revenue problems.
The government cannot say until it has the revenue that it will not provide public goods and services. It does not work that way. I was part of the Lagos State Government during the drive to increase government revenue. At that time, all those roads that were built with signages saying ‘Taxpayers money at work,’ were being funded by debt. Ultimately, those debts will be paid by taxpayers’ money. It began to make a connection in people’s minds, a connection between paying taxes and getting the infrastructure delivered.
So, by spending the money to build the roads even though through borrowed money, it improved people’s willingness to pay their taxes. If for instance, access roads are repaired and the government says it is from taxpayers’ money, the people’s willingness to pay tax will be higher. But if the government waits until taxes are paid, that road may never be built because people may not have the willingness to pay the tax.
In the budget of the Federal Ministry of Trade and Investment, N1bn was earmarked for the creation of a Trade Intelligence Unit. Is it necessary to spend that much on data collection, which is already being collated by the National Bureau of Statistics?
The NBS collects data, but data that is relevant to its own job. For the Ministry of Industry, Trade and Investment, the data that they need is not necessarily of relevance to NBS. They need data because they make policies for the sector. NBS may be interested in data about how many new businesses were registered in the quarter. The ministry is not just interested in how many businesses were registered. They are interested in how many more could have been registered and the reasons that they were not registered.
You mentioned that about 25 agencies had been kicked out of the 2024 budget and that there had been pushback as a result of that. Is it possible to keep everyone happy in the process of coming up with a budget?
No. It has never been our objective to keep everyone happy. The day you see the head of budget being everybody’s friend, you can bet that he is doing something wrong.
How does the budget office plan to align budgetary priorities with economic resilience in 2024, especially in the face of accelerating inflation and currency depreciation?
I think that our policy objectives speak to the challenges that we see in the economy. So, do we think that the budget can deliver on these objectives? I will be a bit positive and say that the budget will deliver on those objectives. Is it a silver bullet? No. Is it a perfect budget? No. But then, in our current circumstances, I believe that our biggest fiscal challenge is raising public revenue. That is the low public revenue against the background of the ever-increasing demand for public goods and services.
For over two decades, we have been running deficit budgets. Those deficits have accumulated. They have been funded consistently. We have not been paying back the principal. Now we are at a point where there are concerns about our debt. The deficit for 2024 is about 3.81 per cent of our GDP.
A lot of people ask, why don’t we cut expenditure? That is not a feasible option. In the first place, we are not spending enough. If you look at our public expenditure to GDP ratio, it is one of the lowest in the continent. So, spending less is not an option for us. We should talk about spending more efficiently in some areas. But even then, when you decompose the budget between what we call discretionary and non-discretionary components, the non-discretionary expenditure does not leave room for spending less because we have debts to service. Even when we talk about debt rescheduling, that is something that the markets do not like to hear.
In October last year, the then finance minister granted an interview and in the process, she hinted that Nigeria was restructuring its debt. Within 24 hours, there was mayhem in the market. So, it is a very sensible subject to discuss. But of course, we always look for cheaper alternatives to refinance.
So, the discretionary component of the budget is not a lot. The scope of saving is by greater efficiency. We have to continue with the deficit to give us barely an adequate level of public expenditure. The solution, therefore, is to drive up revenue.
There are concerns regarding the funds allocated to agriculture. Given that this sector is regarded as an economic backbone. Can you speak to why the allocation to it was low?
You see, when we talk about government budgetary allocation, if you look at the budget for agriculture vis-à-vis what it was eight years ago, the budget is about five times more. It has not resulted in five times more productivity in the sector. So, the solution is not more money. The solution is to make the sector more attractive to private investment.
That is what is going to give us growth in agriculture. And then, when you talk about the budget for agriculture, people are looking at the budget for the Ministry of Agriculture. In the Ministry of Works, the budget for roads that lead to the major agricultural zones also constitutes the budget for agriculture. If you go to the Ministry of Environment, the budget to address the climate change challenges that impact agriculture, they are all part of the things that enable agriculture. So, when we look at the allocation to agriculture, we need to look at it with a different mindset.
Given the importance of private sector participation, how does the Budget Office plan to collaborate with the private sector to implement some of the initiatives that have come out of engagements with stakeholders?
There are some initiatives in the 2024 budget that will expand the scope of collaboration with the private. There is, for instance, a fund for consumer credit. The government is setting aside more than N100bn to basically promote and support growth and derisk consumer credit. What that does is increase demand; therefore, the manufacturing sector can benefit from this.
There are also some funds set aside to help drive mortgage. For the first time, we have actually made a provision in the budget called the ‘project preparation fund’ because people talk a lot about PPPs. PPPs are not as easy as people see it. The private partner is not going to make the investment in all the feasibility studies to bring the project to the stage of bankability. So, for the first time, we have made provisions to support that.
The truth is that it is government policy to support concessions, but we have capacity constraints. I have been part of the Lagos State government team that negotiated some of these concessions, but there are capacity constraints and it is also very politically costly.
A few years ago, we took the East-West Road, one of the most important roads in the South. It has been under construction for over 20 years. It has been in the budget annually. We decided to take it out of the budget. We put it in what we call the Presidential Infrastructure Development Fund.
There were so many protests against it. The road was taken back into the budget, but nothing has happened since. The reason we were finally able to deliver Lagos-Ibadan Express is that it was taken out of the budget. The reason we were finally able to deliver the Second Niger Bridge is that it was taken out of the budget.
When you look at the 2024 budget, what gives you optimism?
I think that the trajectory, in terms of policy and outcomes of what we are doing indicates our capacity to achieve the budget.