Nigeria: why I’m not stung by the 2022 budget
Federal budgets had started to run too fast, especially in the mid-1980s.
Since taking office in 2015, the Buhari government has spent more than it budgeted for each year. The imbalance of budgets has not favored sectors that stimulate national productivity, going instead to debt service and the payment of wages. Unsurprisingly, the assumptions of these budgets were therefore heroic. In this regard, the 2022 budget is no exception.
It seems eons ago now when our governments’ tax and spending plans mattered so much. Not just that people put everything on hold to listen to the head of state’s budget speech. At the federal level, few commentators took seriously a government that planned to spend more on defense than on health and education. Yet these performances counted for far less than audience responses suggested – few governments (military or civilian, federal or state) properly squared this circle. Yet even under military governments, the annual fiscal year has become a study of pledges to improve the lot of the people. Okay, so the descriptions of these budgets have been massively inflated, finally reaching their apotheosis in the grandly named affairs of Cross River State.
In other areas as well, federal budgets had started to accelerate precipitously, especially in the mid-1980s. The price of oil on which these spending plans were set was the biggest sign that our budgets and processes were falling. which they were developed had become mobile. This is aside from the other downside of the details of most budget packages which are ultimately agreed upon long after their delivery dates. The biggest contributor to government dollar revenues, both the volume of crude oil the country sold and the price at which we could sell it, has become the main anchor for national spending plans. The more important the two components, the greater the expected income for each period of the plan and the more each budget seems successful.
Over the years, however, the world price of oil has succumbed to a historic combination of a glut of supply (from new producers, including US shale fields entering the market) and declining demand. (from more energy-efficient production processes on a global scale – including recent and rapid gains in the so-called energy transition). On the other hand, insufficient investment in the national oil and gas space (partly the consequence of an uncertain investment environment created by the long-standing adoption of the Oil Industry Law) has limited the how much oilseeds the country can produce. All of this meant that by the early 1990s, the estimates of oil production and prices on which successive federal budgets were based had started to deviate from reality. These unrealistic estimates in turn supported the Panglossian income figures which perhaps helped any budgets they were part of look attractive; but we could hardly hide the fact that we (as an economy) spend much more than we earn.
… the Obasanjo administration recognized that a huge sovereign debt burden was a limitation to flexible private sector supply responses. But by far the administration’s most important contribution to cleaning up the fiscal planning space has been the introduction of a fiscal rule on oil prices for the budget.
The genius of Obasanjo’s civilian regime was to understand that the ensuing over-indebtedness restricted the options for economic growth. More so, when a key element of state policy was to move the economy very quickly from a growth model led by the public sector to a model led by the private sector. In this reading, the Obasanjo administration acknowledged that a huge sovereign debt burden was a limitation to flexible private sector supply responses. But by far the administration’s most important contribution to cleaning up the fiscal planning space has been the introduction of a fiscal rule on oil prices for the budget.
This allowed us to price our main source of export revenue in the budget and turn any revenue above that price into a rainy day fund (the Excess Crude Account created in 2004). We could not put a price on the predictability that this brought to the national planning chain. That is until the commodities supercycle burst in 2014. Falling oil prices then made the reluctance of subnational governments to play by the oil price fiscal rule moot. Caught between spending policies and declining revenues, the Jonathan administration scavenged funds from any source it could find, devastating the country’s general reserves and plundering the balance of the rainy day fund.
… despite restrictions in the Medium Term Expenditure Framework (MTEF) and Budget Strategy Paper (PSF), our budgets for the past decade have become wish-fulfilling exercises. Take for example the CDMT / FSP 2022-2024. You wouldn’t say from the resulting 2022 budget that the MTEF / FSP …
Our budget process has not recovered since. We can say that it is he who has made the least progress, recovering some of the gains in terms of transparency, which the country made until 2007. This is why, despite the restrictions of the medium-term expenditure framework (MTEF ) and the Budgetary Strategy Paper (PSF), our budgets for the past decade have become wish-fulfilling exercises. Take for example the CDMT / FSP 2022-2024. You could not say from the resulting 2022 budget that the MTEF / FSP, according to an official source, “provides an analysis of major global and national macroeconomic trends in recent years, fiscal effects, policy responses, ‘future direction of macroeconomic policies and projections and assumptions that underpin the medium-term fiscal framework’.
Since taking office in 2015, the Buhari government has spent more than it budgeted for each year. The imbalance of budgets has not favored sectors that stimulate national productivity, going instead to debt service and the payment of wages. Unsurprisingly, the assumptions of these budgets were therefore heroic. In this regard, the 2022 budget is no exception. It’s no wonder he hasn’t garnered much comment, even as the government continues to move the goal post around him.
Uddin Ifeanyi, failed journalist and retired civil servant, can be contacted @IfeanyiUddin.