Posted By CHUBA EZEKWESILI
on December 29, 2014

The theme of 2014’s Budget was ‘inclusive budget’. Whether it was indeed inclusive or not is debatable. Given the current economic climate, 2015’s budget radically departs from that narrative – it is barely inclusive. This is bad, but there’s good news…The proposed 2015 budget is one largely based on faith; so given our religious propensity, we should be quite familiar with it. Fret not, you’ll need that faith when you understand the composition of our 2015 budget.

Wait First. What Exactly is This Budget Thing?

For those who know, feel free to skip this. For those that don’t, you’ll need this part to understand the ‘wisdom’ of Nigeria’s 2015 budget. A national budget is simply an estimate of a government’s anticipated revenue and expenditure during the year. The Nigerian Government plans to spend N4.3trillion in 2015.

The budget consists of two major parts: the recurrent and the capital cost. Recurrent consists mainly of expenditure on wages, salaries and statutory transfers, purchases of goods and services, and debt service. Clearly, recurrent cost keeps the Government running and the civil servants happy. This is great for those in Government, but for the overall economy and the people, the benefits are negligible. To the economy, recurrent cost is like when that Uncle comes during Christmas to give you money for biscuit and sweet. You spend it and that’s the end. The effects are direct, but neither long lasting nor inclusive.

Capital expenditure typically consists of infrastructures such as bridges, hospitals, schools, etc. It’s through capital expenditures that infrastructure and other critical services that touch majority of the people are provided. The only way you’ll directly feel the impact of the budget as a citizen is through the capital expenditures – not monetarily, but through an improvement in quality of living. Capital expenditure is like what your mother spends on your education – you might not appreciate it, but it goes a long way.

So What Does the Budget Have to Do With This Austerity Thing We Keep Hearing About?

Austerity measures are policies used to tighten government expenditure, close loopholes that cause revenue losses and a gross reduction of budget deficits during adverse economic conditions. Why does Nigeria need austerity measures? Nigeria is kinda broke due to falling oil price. You can read more on how we got into this mess here.

Austerity measures are created to ‘trim the fat’ of government, so money goes to crucial areas that encourage economic development. This means that recurrent costs like high wages and salaries, duplicate workers, unnecessary spendings on travels and new goods get cut.

Ohhh. So The Budget Should Ideally Spend More on Capital Than on Recurrent, Right?

Well…not exactly. In fact, not at all. For all the talk about austerity measures, Nigeria’s recurrent cost rose. The budget showed that Recurrent Expenditure takes 91% of the budget, rising from N2.468tn to N2.616tn.

Spending more on Capital cost than recurrent might be the most economic prudent decision, but it never happens. Even in the good old days of higher oil revenue, Capital expenditure suffered. Capital expenditure dips from N1.55tn in 2014 to N387bn in 2015. That’s from 24% to 9% of overall budget. Sadly, capital expenditure is like the unappreciated house-help that does all the work and yet doesn’t get Christmas clothes.

Governments find cutting capital costs easier cause there’s little direct impact on the pocket of citizens as compared to cutting recurrent cost. The Nigerian Government is one of the largest employer of labor in the country, so it would be politically suicidal to go on a firing spree during this election period. Moreover, it’s simply hard to get the same people setting their wages to cut it down. Also, with a new presidential private jet and the usual 150 billion for the National Assembly included in the 2015 Budget, it seems the angel of austerity spared top Government officials just like the angel of Death spared the Israelites in Egypt.

In the short run, it might be the easier and more politically-expedient move to sacrifice capital expenditure on the altar of recurrent cost, but its not the smartest move. The overall health of the economy suffers from this move. It’s like your mother spending on your Christmas cloth rather than keeping money for your January school fees. It’s sweet now, but painful later.

So How Does the Government Plan to Fund the Budget?

A budget is only as useful as the amount you have. If you like, write a long list, when you go to the market with only N10, you’ll only come out with pure water. Similarly, with our falling oil revenue, Nigeria desperately needs to find money from other sources. Nigeria plans to sponsor the budget with oil revenue and make up the rest of the revenue by diversifying its non-oil revenue sources, and broadening and updating its sources of tax receipts.

This is the part where the budget’s theme goes from ‘austerity budget’ to ‘faith budget’. Nigeria’s budget benchmark is set at $65 per barrel, however, the price of oil is currently at $59 and could fall further. In fact, Saudi Arabia has their 2015 budget benchmark at $60. They’re obviously less optimistic than we are. If they’re right, it means we’ll make less money than we’re expecting. It’s like buying the iPhone 6 on credit, only to find out that your dad gave you money for a Techno phone.

There’s also a tad bit too much optimism on the non-oil revenue front. The Federal Government expects to bring in N1.68tn for 2015. Given that revenue generated in 2013 was N1.07tn, our 2015 target might be a bit too optimistic. Perhaps if independent revenue agencies and MDAs get squeezed, we could pull in N1.2tn. Remember, this is also by faith.

Also, increasing taxes should bring in some money. The tax on luxury items such as private jets, luxury yachts, luxury cars, business and first class airline tickets, champagnes, wines and spirits adds to N10.56 Billion in a year. I’m uncertain how much it does, but just for some perspective, N21 Billion was donated to the President’s election campaign in one night.

So What Happens If the Revenue Doesn’t Add Up?

When this happens to a Government, the next step is typically to borrow in order to cover the budget cost. If oil prices stay below $65 per barrel, we shall borrow. If our volume of crude oil sold falls below our target, ‘borrow borrow’ will continue. And if we do not meet our quite optimistic non-oil revenue target, we will continue borrowing. Our domestic debt has risen from N4.55trillion in 2010 to N7.65trillion as at September 2014…and things were still a bit economically smooth back then.

Yes. That’s a lot of borrowing. The Government knows this and has tried to stem it. After the curtailing of international travels, reduction of procurement and upgrade of buildings, and a partial implementation of the Steve Oronsaye report, the Government will save N82 billion next year. Aunty Ngozi try small, but a glance at the composition of the budget still ‘dey turn belle.’

So What’s The Implication?

The budget report mentions several government efforts at diversification of revenue, but the act of slashing capital expenditure introduces a conundrum. For us to increase our non-oil revenue, we must diversify. However, diversification of the economy can only occur if capital spending is high, not when you slash it – which is exactly what we’re doing.

The budget depicts the future economic plan of a government for its country. If so, then Nigeria’s proposed 2015 budget goes a step backward into our past to highlight our addiction to extravagantly large governments and our nonchalance for strategic long-term investment.

We’ve treated the economy the same way we treat our roads. We wait for it to have huge potholes, then kill a bus load of (preferably prominent) people before it gets fixed. Meanwhile, those who drive down the road do so by faith, hoping not to get killed. Currently, we’re staring at the potholes littering our economy’s future and there’s need to not only avoid them, we’ve got to fix them. This 2015 budget might just optimistically dodge these holes, but it’ll do little to fix them. Merry Christmas and a Happy New Year to all! With a budget like this, you’ll need all the happiness you can get in 2015.

NB: I’m sure there’s a legitimate reason the budget presentation looks like a cake…

Source

I love this!... So simple and concise.

I believe even the layman on the street will easily comprehend this.
Nice one OP.

Moderators please do the needful.

I thought this is a great piece, very simplified and yet indept. It makes these things look like ABC.. but our government sha

Bullshit government sided explanation. Borrowing is going to top 1.5trillion and a lot of it is going to fund recurrent expenditure. Export promotion to shore up naira value is not being tackled except maybe for raw agric produce. Defence and security will consume at.least 1 trillion but no effort afoot to buy weapons so that we get the war over quickly and reduce recurrent on soldiers allowances.

On the issue of cutting costs, I think its past time we remove constituency project allowance from the remuneration of our lawmakers, its completely useless cos most of them don't do any project and that alone is over 50% of their exuberant pay.
and on generating more money, its time we looked at how to tax gambling in this country, most bookmakers are making huge money from Nigerian gamblers and they don't even pay a dime in taxes. Britain is already talking about how it wants to generate 1b£ from its gamblers, we can too.

#GEJtill2019

How do u define a govt who have jst increased its feeding allowance from a billion to 4bn
How else do u describe a govt that's planning to buy another aircraft in spite of the duelling oil revenue and economic challenges
How else do u define a govt with a whooping 91% for Re-current expenditure
How else do u define a govt whose head said "Common Stealing, you call it corruption"
How else do u define a govt whose economic performance is looking so good on paper but its not reflecting on the lives of the people"
How do u define a govt who have Created more Billionaires than others..
Lets vote for change..
Nigeria has potentials, we can do alot better than this
vote GMB 2015
Vote Change

Adminisher:
Bullshit government sided explanation. Borrowing is going to top 1.5trillion and a lot of it is going to fund recurrent expenditure. Export promotion to shore up naira value is not being tackled except maybe for raw agric produce. Defence and security will consume at.least 1 trillion but no effort afoot to buy weapons so that we get the war over quickly and reduce recurrent on soldiers allowances.

When a govt borrows to pay salaries, then u know there's problem..

to me, Nigeria is like a child whose parent discover money suddenly then all of a sudden, the child feels he can no longer eat what is being cooked at home, walk to school, wear normal cloth but designers, sleeps in 5 star hotel, eat at eateries. always clubbing and going abroad for enjoyment. We are wasteful as a nation.
Austerity or not, we are still wasteful.

plainol:
to me, Nigeria is like a child whose parent discover money suddenly then all of a sudden, the child feels he can no longer eat what is being cooked at home, walk to school, wear normal cloth but designers, sleeps in 5 star hotel, eat at eateries. always clubbing and going abroad for enjoyment. We are wasteful as a nation.
Austerity or not, we are still wasteful.

Bro it is Corruption, it has eaten deep in all aspect of lives in Our present day Nigeria, we seriously need a Messiah..Jonathan doesn't care even if the nation goes completely broke as long as he remain in aso rock..

Do not put Budget,Jonathan and Iweala in the same sentence.
They simply write something on paper and present it.

Whao! Nice one bro

Op well done

Its not rocket science its simple, the present govt is wasteful and does not care about the future.

Vote for a change

Vote for a lesser evil

Since the devil we know is wasteful

Vote buhari!

r231, Freiburger, this makes more sense on fp than recovering 6k from GF

interesting.

herald9:

Reading this makes me feel like every president should be an Economist...They might know how to run the country better and minimize spendings...

3. herald9 : Quote Post
How can a big nation like this be in serious debt when
people are contributing billions of Naira to fund
campaigns...
Where is the money coming from?
When things go from bad to worse, at the end it's the
common man that will suffer after they start withholding
salaries,while the rich will keep bathing in affluence... So
much for a thinking country.

This really breaks my heart, Isreal is one of the smallest country in the world yet they plan their budget in way that they don't spend upto 50% of their revenue, when are our leaders going to start being patriotic.

ok.

change is all we need.

stowie

hmmm

Ok

---

THIS           SPACE 

IS   NOT   FOR   SALE


Beware of my son Mohammadu 

[size=18pt]GEJ, 2009-2019[/size]

---

Let cut off the recurrent expenditure most especially those of members and senate down to the state legislative. So we go of less borrowing even if the capital expenditure will remain as the way it is for now. And let us hope for the economics to be stable

GAZZUZZ:
Its not rocket science its simple, the present govt is wasteful and does not care about the future.

Vote for a change

Vote for a lesser evil

Since the devil we know is wasteful

Vote buhari!

r231, Freiburger, this makes more sense on fp than recovering 6k from GF

jonathan might not be an angel,
but buhari is a demon!
do not invite demon into your life.

Okocha

I have always felt that this administration that abhors corrupt women, Diezani and Stella and the miraculous disappearance of $20B is heading for the doldrums. Never in the Democratic history of Nigeria can corruption be felt by human skin. This nation is at the brink of eminent disaster. The clueless one has to go, the nation and economy are falling apart.

Big grammar to chop our money