In spite of being caught in the maelstrom of plummeting oil revenues, the Federal Government has still not come to terms with the imperative of preparing a realistic national budget. Even by Nigeria’s dismal standards, the 2015 budget proposals laid before the National Assembly by the Finance Minister, Ngozi Okonjo-Iweala, is a sorry joke. So unrealistic is it that the key pillars of the budget were collapsing while the minister was still pontificating before the federal legislators. The Federal Government should be bold enough to admit that it has goofed yet again and withdraw the woolly document at once.
Just how low public service has sunk here is evident in the derailment of the key assumptions of the N4.46 trillion spending plan. Oil prices continued their headlong plunge by dipping to $51.6 per barrel on Wednesday, effectively upturning the budget that was rashly predicated on an assumed average oil price of $65 pb. With oil revenues providing 75 per cent of all public earnings and 90 per cent of the national budget, it is obvious that the plan is a non-starter.
Moreover, the assumption of a naira exchange rate of N165 to $1 has crashed. It exchanged officially at N168.73 to $1 last week with banks retailing it at over N170 to $1 and hitting up to N194 to $1 at the parallel (and more realistic) market. Additional gloom hangs over a third plank of the proposals. While the assumed average production of crude oil is 2.27 million barrels per day, the average crude production in the second quarter of 2014, according to the National Bureau of Statistics, was 2.21 million bpd, declining by 11.58 per cent in the third quarter. Indications are that, with the glut in the international oil market, increased piracy and theft of Nigeria’s crude and the loss of the United States as our major oil buyer, it may be difficult to meet our Organisation of Petroleum Exporting Countries quota.
It is baffling that the Executive went ahead to prepare this kind of document at a time the economy is in turmoil. Oil prices began declining in August last year, moving from $107pb to $101, then $97. This became a rout from November, crashing to $63pb even as Okonjo-Iweala was laying out the proposals before the legislature on December 17 based on $65pb.
Prices are succumbing to pressure from massive production from traditional oil producers, new exporters and massive shale oil and crude production from the US. The government refused to heed sensible advice to revise its initial benchmark downwards from $78pb to $40-$45pb, preferring, first, the shaky figure of $75pb even while experts were predicting gloomier times ahead and Saudi Arabia and the US producers were girded for a long-drawn price war that could well drive prices below $40pb.
The $65pb it eventually settled for fell flat as oil price further dipped to $61pb that very day! Said Okonjo-Iweala, “We are going to stick to the benchmark in spite of the declining price of crude because we feel that the average price next year would be about $65 to $70.” This is ridiculous. The World Bank has just warned of the likelihood of crude oil prices remaining cheap for some time. The days when oil prices rose from $30 a barrel in 2003 to a peak of $147 a barrel in 2008 are gone for good. The reality today is that the global economy is standing on the threshold of a new era of more abundant hydrocarbons made possible by new technology at lower prices.
You base planning on scientific analysis and realistic projections; not on feelings! Besides, it is better to adopt lower price benchmarks for implementable budgets rather than suffer budget derailment when the worst case scenario, over which you have no control, happens.
The situation calls for drastic spending cuts in all areas. The government should rein in its spending and commit the available oil revenues to critical infrastructure and human capital development. Since corruption continues to hold both the people and public institutions in its grip, the Jonathan government has to get more serious about curtailing corruption and cutting waste. The return of items such as the purchase of canteen/kitchen equipment for the State House in 2014 that gulped N131.75 million, purchase of medical/health equipment, and construction/provision of fixed assets, all of which reappear in the budget every single year, amounts to daylight robbery. No one replaces kitchen equipment or furniture annually, but these items appear always in the annual estimates for most ministries, departments and agencies. Our budgeting has become executive fraud with the active connivance of our unprincipled lawmakers.
Public officials must be forced to abandon their decadent, racy lifestyle too. The President should reduce his 130-plus retinue of special advisers/assistants, sell off eight of the 10 presidential aircraft, reform the tax system to wean the economy off its self-destructive reliance on crude oil for survival, reform the corrupt state oil company and drastically reduce the size of the bureaucracy.
A budget that earmarks only N633.53 billion – a miserable 14.20 per cent – for capital projects, but N2.6 trillion (58.29 per cent) for recurrent expenses and N943 billion (21.14 per cent) for debt servicing, in an economy, which the United Nations Development Programme says needs $20 billion investment annually for 10 unbroken years to bridge the infrastructure gap, is virtually useless. The Revenue Mobilisation Allocation and Fiscal Commission should drastically slash the emoluments of public officials while Jonathan, his ministers and the state governors, should take sharp pay cuts and trim the cost of governance.
In the meantime, the parliament should throw out wholesale the hopelessly unfeasible budget proposals now.
Punch
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