According to reports in the media Monday, the Federal Executive Council of Nigeria has agreed to a budget of N6 trillion for 2016. The proposed budget is predicted in light of the oil price of $38 per barrel and crude oil production of 2.2 million barrels per day. It also projects a 30 percent allocation of the budget for capital expenditure. It is worthy to note that the 2016 budget exceeds that of 2015 which makes it Nigeria’s second highest since 2000.
With yesterday’s announcement in mind, Ventures Africa spoke with Dr A. O. Ogunyemi, a budget historian of Obafemi Awolowo University Ile Ife who explained what we need to know about the 2016 proposed budget and what it means for Nigeria.
Ventures Africa (VA): Looking at the state of the economy, does Nigeria need a budget of N6 trillion now?
Dr A.O Ogunyemi (DO): The country needs a budget of N6 trillion and maybe even more. Analysing the expenditure outlook of the government, this budget is reasonable because the economy needs to be jumpstarted. The growth rate is very slow at 3.4 and 3.6 percent when the projected growth is 6.7 percent, meaning the government needs to do something about spurring this along.
VA: What does it mean when the government is basing its oil benchmark at $38 per barrel?
DO: The government has just set its expectation for the crude oil at $38 per barrel. This year’s approved benchmark was $53 and there has never been a time when crude oil was sold at $50 a barrel in Nigeria. The current sale of Nigeria’s Brent crude is $43 as at today and this means there is a shortage in Nigeria’s budgetary expenditure, according to President Jonathan’s budget, by $9. The $38 per barrel projection is very realistic especially now that the global price of oil is very volatile.
VA: Would the senate approve the $38 benchmark or should we expect a different number?
DO: Of course, they would most likely approve it. Looking at our revenue performance this year you’ll see that there was no time that the country sold its oil for $50 and this will most likely lead legislators to approve this.
VA: Is it realistic for the government to base the production of oil at 2.2 million barrels per day?
DO: Since the government has been able to suppress the issue of pipeline vandalism significantly enough to guarantee the free production of oil in most areas of our production stream, the production of 2.2 million per barrels per day is a realistic target.
VA: What can you say about the current budgeting system?
DO: The government needs to change from an instrumental budgeting system to a zero-based system. With the zero-based budget you don’t give money based on the benefit of doubt. Every expenditure head that needs money must justify why he needs it. There are several benefits of this system including the blocking of wastage and leakage as well as ensuring transparency, accountability and value for money and the instrumental budgeting system we are utilising now does not permit all that.
VA: Is there a timeframe for passing a budget?
DO: According to Nigeria’s Financial Year Act of 1980, Section One, Nigeria’s budget year shall run from January 1 till December 31. If a budget needs to be run it has to be completed by October which means that this budget is already significantly late. There is no way the government would pass the budget by January 1 because the national assembly needs at least 90 days to scrutinize it.
VA: What should Nigerians expect from the budget?
DO: Nigeria should expect implementation of those projects that were not completed by the previous government. For instance, we should expect a significant completion of the Lagos-Ibadan expressway and more to be done in federal universities across the nation. The government would be able to pay contractors they have owed for years, enabling them mobilize workers to the different sites they are required, creating more jobs. In the end, Nigerians should expect more jobs and better infrastructure.
VA: What does the appropriation of 30 percent of the budget on Capital expenditure mean?
DO: If you have 30 percent of your budget going into capital expenditure. It means we are going to have more infrastructure; government would be spending less on consumption and more on the creation of wealth. Since 30 percent would be going into capital expenditure, which grows the economy and provides the jobs, that is a statutory development.
