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Cheta Nwanze: Tinubu’s fictional budget mirrors reckless fiscal policies of his predecessors

A close look at some of the estimates throws up some urgent questions and concerns.

• November 24, 2023
A composite photo of President Bola Tinubu and Nigerian masses used to illustrate the story
A composite photo of President Bola Tinubu and Nigerian masses

The Minister of Budget and Economic Planning, Atiku Bagudu, recently unveiled the government’s budgetary proposals for the 2024 fiscal year. A budget is a vital component of any country’s economic strategy, which can shape its entire socio-economic landscape. The budgetary estimates also serve as a guide for public financial management in the country.

Nigeria’s 2024 headline budget figures, as presented last month by the minister, put total expenditure at N26.01 trillion, which is approximately $34 billion. This was based on the assumptions that the average price of crude oil in the international markets for the year would stand at $73.96 per barrel (pb) and that Nigeria’s oil production would average 1.78 million barrels per day (mbpd). 

The exchange rate of the naira to the US dollar is estimated at N700/$1. The gross domestic product (GDP) is expected to grow by 3.76 per cent after adjustment for inflation, and the inflation rate is projected to average 21 per cent. Other projections, or assumptions, of the budgetary proposal, include salaries and pensions outlay of N7.78 trillion in total, and debt-service cost is estimated at N8.25 trillion (approximately $10.8 billion).

A close look at some of the estimates throws up some urgent questions and concerns. 

First, the daily oil production target of 1.78 million barrels in 2024 appears rather ambitious. Since 2022, Nigeria’s daily oil production has averaged 1.2 mbpd. Achieving a daily average increase of more than 500,000 barrels per day in one year is a substantial challenge, given the recent decline in oil production, activities of illegal refineries, oil theft, and weak market confidence in the government’s ability to reverse these and other unsavoury economic trends.

The International Monetary Fund (IMF) has expressed doubts about the feasibility of the oil production target, describing it as “challenging” in a recent report. The reservation expressed by the IMF underlines the scepticism within the international community regarding the prospects of Nigeria’s economic turnaround in the short term.

Also potentially impractical is the projection on the exchange rate. As of November 20, the naira was already trading at above N1,160 to one US dollar in the parallel market (which conforms more to demand-supply interplay), down from N1,200/$ when Senator Bagudu made his presentation. There is no way we are going to get to N700/$ that the budget is assuming by year’s end. In practical terms, this gap between the proposed exchange rate and the current market rate is more than 40 per cent. 

With the recent lifting of the restriction of access to the official exchange rate market for sourcing dollars for the importation of some 43 items, demand pressure on the Investor and Exporter (I&E) window of the foreign exchange (FX) market is bound to increase and drive up the rate. Should the current supply crisis in the official FX market persist, demand will cycle back to the parallel market.

The ongoing depreciation in the value of the naira has been a major contributor to Nigeria’s high inflation. The negative impacts of the rising consumer price index have included business decline and invariably weak public revenue growth. If these issues are not quickly resolved, the projection of a real GDP growth rate of 3.76 per cent will remain quite ambitious. To be blunt, it is a tall order to assume that the structural, institutional, and productivity issues that have constrained Nigeria’s economic growth for nearly a decade would be effectively addressed in one year. What significant changes could be made regarding infrastructure deficit, insecurity, and labour market constraints in one fiscal year?

The challenges the Nigerian economy faces are numerous. A recent report by SBM Intelligence, run by yours truly, shows that most Nigerians spend more than 90 per cent of their income on food. With an overwhelming majority of the citizens essentially living from hand to mouth, consumer spending for non-food items is quite minuscule compared to the potential of a market size of over 218 million people.

To reflate the economy and foster price stability, the government wants to increase foreign borrowing and attract foreign investments. No doubt, a significant improvement in FX illiquidity would itself be a sign of improved confidence in the economy. At the same time, it would help attract more inward investments, especially if the CBN clears the backlog of FX contracts and supports a free and competitive marketplace.

According to the NBS, Nigeria recorded a decline in capital inflows into the country in the first quarter of 2023 compared to the figure recorded in the first quarter of 2022. The total capital inflows for the first three months of 2023 declined by 28 per cent year-on-year to $1.13 billion, reflecting investors’ unwillingness to invest in Nigeria. While investors are encouraged by the stated commitment of the Tinubu administration to market policy in FX and energy markets, the ability to sustain those policies has come into doubt because of the backlash, and it is clear that the government has blinked.

It is expedient that the administration adheres to budgetary discipline and upholds fiscal responsibility. The performance of the budget and the realities that would unfold in the first fiscal year of the new administration may affect its reputation. This is why the budget proposal should undergo careful revision before it is presented to the National Assembly later this month for consideration and passage. In any case, the government has already flip-flopped on a few of its policy initiatives, and any corrective measures to the 2024 budgetary proposals would be a welcome development.

But it is, indeed, worrisome that the Tinubu administration has so far followed many of the established negative patterns of its predecessors. Such accustomed maladies include poor implementation of budgets, extrabudgetary spending, lavish asides, and opacity in public financial management. This is why it is a major concern that backyard mechanisms are now being employed to fund fuel subsidies after the song and dance over its removal just five months ago.

It is a major concern that the relatively new government wants to further expand the budget deficit before consolidating its revenue generation plan and effectively putting it to work. Nigeria cannot continue to toe the path of fiscal irresponsibility. The government needs to conduct proper fiscal housekeeping and launch practical initiatives that can unlock the potential of the Nigerian economy. The country is in dire need of credible governance and fiscal frameworks to spur domestic and foreign investments and improve the welfare of the citizens.   

Cheta Nwanze is a partner at SBM Intelligence.

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