Lessons from 7 factors that forced 2016 budget to fail to guide 2017 budget debate at NASS
Preliminary thoughts of the National Assembly on the 2016 budget was that it will among other things, rejig the economy using government expenditure to spark inclusive growth in economy, create jobs, cater for the poor through social protection funds, prevent shocks on naira, as well as, engender efficient public fund management and reduce cost through blockage of leakages.
However, towards the end of third quarter, it become very clear that the whole thoughts were just fake imaginations as it has become clear that the 2016 national budget failed.
Accordingly, many of the members of the National Assembly have started taking technical reviews of the issues and factors that hobbled the projected performance of 2016 budget of N6.28tn.
Otherwise, what is in their minds now is how they will avoid some of the false assumptions that drove the debates for the approval of the 2016 budget during the 2017 budget debate before President Muhammadu Buhari signed it into law.
At least for now, majority of the lawmakers have realized that any national budget that seats on an economy that is driven on weak infrastructural base is destined to perform below expectations.
The lawmakers may have also observed within the period of the 2016 budget regime that accessing government’s fund by MDAs from the Treasury Single Account (TSA) was hell as up till now, several government’s financial obligations are hanging in the balance not because of no approval, but simply because getting approved fund from TSA takes the longest period of time and is highly cumbersome.
Other factors and or predictions that failed the 2016 budget which the lawmakers need to look carefully is the challenge of planning with daily crude oil production figure of 2.2million barrels per day (mbd).
It was clear shortly after the signing of the budget by President Buhari that the 2.2mbpd will not work and it did not work because of the activities of Niger Delta militancy.
Experts say the federal government realized the need to use dialogue very late and the economy paid for it dearly as daily output dropped and hovered around 1.5mbd to 1.9mbd, thus; creating a wide differential between revenue expected and actual income.
The third factor that hobbled the 2916 budget and by extension the economy is the exchange rate.
From the end of the second quarter of 2016, indication started to emerge that pegging the forex at N197 will no longer be workable.
The 2016 budget was predicated on N197 to a dollar. The situation on ground has proved the contrary as the true situation suggests that the naira now exchanges for over N400 and naira can be said to be the most confused currency in the continent due to its unpredictability.
Beyond the frustrating fluctuations of forex during the duration of 2016 budget, another failed basis of the budget was the galloping trend of inflation which may have not been factored within the debate at the floor of the House and red chambers.
The abysmal drop in the Gross Domestic Product (GDP) from 4.37 per cent to the current squeeze of -0.36 per cent was never thought by any lawmaker during the debate on 2016 budget.
In the 1st quarter of 2016, GDP growth shrank by -0.36%, followed by another negative growth of -2.6% in the 2nd quarter, whereas in the 3rd quarter negative growth continued further to -2.24%.Also, fiscal deficit-to-GDP ratio as captured in the 2016 budget is 3%, but as at Q3 of the year under review, the borrowing rate has risen higher.
Whereas, crafters of the 2016 budget pegged the inflation rate at 9.81% at the peak, as at October, the rate of inflation had climbed to double digit high of 18.3%.
Another factor that killed the performance of the ending 2016 budget is the failed Federal Government anticipation that the price of crude will not drop beyond $38USD/barrel as captured in the 2016 budget appropriation.
But volatility in the world price forced down prices to all time lows of between $20 to a little above the margin. However, market volatility has again resulted in gradual rise in world crude price to $50USD/barrel recently, after steady lows in the 1st, 2nd and 3rd quarters.
There are fears that the OPEC cuts may not be sustained for too long meaning that oil price may drop sooner than later.