Implementation key to results
The N27.5 trillion 2024 budget proposal is an ambitious plan to reset the Nigerian economy, but the realisation of key budget goals and assumptions depend on coordinated implementation of the approved budget.
Experts surveyed by The Nation generally described the 2024 budget as conservative and ambitious, but were worried that current global and macroeconomic dynamics present an uphill task for the government.
President Bola Tinubu had last week laid a 2024 budget proposal of N27.5 trillion before the National Assembly. The budget named “Budget of Renewed Hope” focuses largely on defence, internal security and job creation.
Budget benchmarks included oil price of $77.96 per barrel, daily oil production estimate of 1.78 million barrels and exchange rate of N750 to a dollar. The breakdown included capital expenditure of N8.75 trillion and debt service of N8.25 trillion.
The experts included Managing Director, Arthur Steven Asset Management, Mr Olatunde Amolegbe; Director General, Lagos Chamber of Commerce and Industry (LCCI), Dr Chinyere Almona; President, Association of Capital Market Academics, Professor Uche Uwaleke; former President, Association of Nigerian Licensed Customs Agents (ANLCA), Prince Olayiwola Shittu; Lead Director, Centre for Social Justice, Eze Onyekpere and former President, Miners Association of Nigeria (MAN), Sani Shehu.
Amolegbe said the budget was very conservative at an aggregate spend of $33 billion, relative to the population and the president’s stated goal of achieving a $1 trillion economy within seven years.
According to him, the government’s cautious approach is commendable given this is its first actual budget and its reforms are yet to fully kick in.
He noted that the benchmarks used to estimate the revenues appears ambitious in the face of reality, urging the government to work on implementation to achieve key targets.
“An exchange rate of N750 per dollar and crude production of 1.78 million bpd are very far off from where we are at the moment and the government will need to work extra, otherwise this could lead to a widening of the funding gap in the budget that is already in excess of N9 trillion. A recurrent expenditure of well over 60 per cent leaves limited room for spending on much needed capital and infrastructure projects that could help boost the economy and create much needed jobs and livelihood for the people. This needs to be looked at going for,” Amolegbe said.
According to him, implementation will be key to budget effectiveness.
“The government will need to be more aggressive in cash-backing those aspects of the budget that relates to infrastructure because those are the ones that have immediate impact on the citizens,” Amolegbe said.
Almona urged the government to improve its budget performance in terms of capital expenditure in 2024.
According to her, the reason to improve the budget performance was because the capital expenditure had always been low, relative to the recurrent expenditure.
She however said that it was commendable that the strategic objective of the expenditure policy was expected to tackle macro-economic stability, investment, environment optimisation, human capital development, poverty reduction and social security.
“The LCCI notes that the assumptions are conservative, particularly in terms of oil prices and exchange rates. However, daily oil production remains a major concern due to persistent underinvestment, vandalism, oil theft, and rising production costs in the oil sector.
“The chamber also notes that relative to Nigeria’s Gross Domestic Product (GDP) size, the proposed budget is 12.2 per cent, which is very low compared to its African peers like South Africa, with a government expenditure to GDP ratio of 32.5 per cent, Egypt (24.7 per cent), Kenya (23.0 per cent) and Ghana (27.1 per cent). This is a serious issue that needs to be addressed by government, in the light of its renewed hope agenda,” Almona said.
She stressed that attention must be on investment in transport infrastructure, to mitigate the high cost of fuel and resolve the manual logistical challenges impacting the movement of goods and services nationwide.
She added that government must build investors’ confidence and enhance foreign exchange (forex) earnings through non-oil exports.
“We need to invest more in export infrastructure through automation and implementation of critical port reforms to reduce the bottlenecks in our export logistics and processes. In addressing the most significant components of human capital development, we urge governments at all levels to be committed to significantly improving budget implementation in strategic sectors of the economy, including agriculture, education, health, infrastructure, and security.
“Efforts must be made to scale up revenue collection by the Federal Inland Revenue Service (FIRS) through consistent tax administrative measures, digitalisation, and policy reforms,” Almona said.
Uwaleke said the budget is promising but the distortionary impact of forex regime could be a major challenge to the budget.
According to him, overall, the 2024 budget proposals hold a lot of promise for the economy if well implemented.
“A major snag, however, stems from the likely distortionary impact of the new forex regime. A naira float in the face of weak supply and strong demand with its attendant forex market volatility introduces uncertainty in budget implementation. This is why I consider the N750 to the dollar rate used for the 2024 budget as a tall order. It is most likely the exchange rate will be the major cause of wide variances in the 2024 budget on account of Nigerian Autonomous Foreign Exchange Market (NAFEM) operations,” Uwaleke said.
He noted that a volatile and high exchange rate would increase the cost of servicing external debt and further widen the budget deficit.
“This is particularly so in respect of the dollar-denominated component of the budget, much of which can be found in the over $1 trillion proposed defence spending as well as in recurrent debt expenditure. In my view, a well implemented and corrupt-free dual, not multiple, exchange rate regime helps to bring certainty in government procurements and short term planning in general,” Uwaleke said.
He advised the federal government to explore more opportunities for concessional project-tied loans from multilateral and bilateral sources, adding that these would help to boost forex reserves and stabilise the exchange rate.
“With respect to borrowing domestically, it is important that emphasis should be placed on the use of the right instruments such as infrastructure bonds as opposed to Federal Government of Nigeria (FGN) bonds that are inflationary prone,” Uwaleke said.
Shittu urged the federal government to keep to the promise made by the President through the creation of an enabling business environment to enable the “ the federal government and private investors to continue to strengthen and support investments in our ports and waterways, to improve supply chain resiliency and expand our efforts to address climate change and tap the potential of Blue Economy.”
The 2024 budget, Shittu said, will assist the federal government “to put primary emphasis on the disposal of the worst conditioned, non-retention vessels to mitigate environmental risks.
“We hope the budget will also enable the current management of the Nigerian Ports Authority (NPA) to continue modernising our ports, to help reduce the costs of moving goods from ships to shelves and from terminals to warehouses, from Nigerian farmers and factories to local and foreign destinations.”
Speaking on the N27.5 trillion 2024 budget size, Lead Director, Centre for Social Justice, Eze Onyekpere, said projection of of 1.78mbpd oil production is optimistic for now.
He said the position may change in early 2024 as Nigeria gears up to raise its OPEC quota.
He said Nigeria has what it takes to achieve the target, adding that he had expected between 2.1mbpd oil production to 2.5mbpd oil production.
On the exchange rate projection of N750 per dollar, he said with improved oil output comes uptick in dollar earnings which will also strengthen exchange rate.
“With increased crude oil production, the Central Bank of Nigeria will have more funds to protect the naira. The funds targeted for debt service is in order,” Onyekpere said.
He advised the National Assembly to do a thorough job on the budget, and not rush it.
“I would have preferred a mid-January 2024 budget passage. This budget is very important that it should not be rushed. The National Assembly should take their time to study and take the right decisions on the budget benchmarks,” Onyekpere said.
Shehu said the mining sector can bring in enough forex to fund the 2024 budget.
In response to the Presidential speech on the “limited resources available through the federal budget”, he said about 70 per cent of mining products in Nigeria are export based and not processed for the end use in Nigeria.
He said they are bound to attract huge foreign exchange if only the government would invest in the mining sector and work with critical stakeholders to be guided.
“I would like to commend the president and the parliament for preparing the budget on time, this has not always been obtainable with previous administrations. It is clear that the government is under serious financial pressure, especially as it relates to forex, we all know that we have to sell out a product to get foreign exchange in order to earn in dollars.
“Nigeria seems to have only few products to earn dollars so if the government can develop the mining sector because about 70 per cent of mining products in Nigeria are export based and not processed for the end use in Nigeria, so they are bound to attract huge foreign exchange. For that to happen the government has to make some investments in data generation, improve security so that foreign investors would come and partner with indigenous investors, provide employment and inturn reduce insecurity.
“Ninety per cent of what India as a country uses are locally produced, so they don’t have the dollar challenge, so there is the need to ensure that while we are for now selling to earn dollars, we should also think of producing what we want in order to reduce the need for dollars for importation.
“I hope the government would give the mining sector the attention it deserves and work with critical stakeholders so they can be guided because it is a sector that requires expert contributions.
“The federal government needs to address the issue of dichotomy amongst the three tiers of government. Mineral resources according to the constitution belongs to the exclusive list but there is strong agitation by some governors to the extent of closing mining sites, the government needs to address the issue because it is sending a dangerous signal to foreign investors and without these investors it would be difficult for the sector to grow at the rate we want it,” Shehu said.
