How realistic is the 2009 budget?

THE 2009 budget proposal presented by President Umaru Yar'Adua on December 2, to a joint session of the National Assembly is standing on one leg. And, unlike the previous ones (which also totally depended on oil revenue), this time around the leg (oil) is bleeding profusely with serious injury. If it succumbs to pressure, the estimates foisted on the budget would collapse and government would face a grim fiscal year 2009. This should be a matter of serious concern.

To avoid a situation where the entire budget could be frustrated by the unfolding economic realities, I think government should take a second more drastic look at the entire proposal before it is passed into law. If possible, it should be withdrawn for more critical analysis and reworking based on current economic realities. Otherwise, the National Assembly should thoroughly dissect the budget and make it more realistic.

The point is that the $45 per barrel benchmark for crude oil on which the budget is based is clearly unrealistic. It is better to err on the part of reason than do otherwise. And that will be pardonable even if it turns out to be unbecoming. But at least, that would presuppose that government is sensitive and has taken time to analyse the situation and any shortcoming thereafter would be seen to be beyond human control. An Igbo adage says, you don't tell a deaf that the market is on fire. Once he sees the crowd running, he will also take to his heels without being told.

While budget 2008 was the most plenteous and favoured in decades, in terms of accrued revenue surplus, budget 2009 on the other hand is the most inopportune in a decade. In terms of expected revenue from which the budget is financed, it was presented with a huge deficit of N1.09 trillion due to the crash in crude oil prices. No other budget has been presented with such bleak cloud hanging over it in recent times.

As the budget was being presented, the price of oil was nose-diving. Two days after the budget was presented, the price of oil fell to $43. By Friday, December 5, three days after the budget was read, the price of oil has come down to $40.50 per barrel, levels last seen in December 2004. This, in effect has already slashed nearly $5 off the budget benchmark.

The grim situation has prompted the Organization of Petroleum Countries (OPEC) to consider further cuts in output. Consequently, it has fixed a meeting on December 17 in Algeria to address the problem. Analysts are predicting a cut of as much as 2 million barrels per day. OPEC had last October slashed production to 1.5 million barrels a day but it had no perceivable effect on oil price as investors ignored it and rather concentrated on addressing the worsening global economic crisis.

Countries around the world are not taking the present economic situation for granted. They are taking time to analyse the situation, as it would affect every sector of their economies in the coming year. This is to avoid committing blunders by way of announcing flawed fiscal policies that would not help to mitigate the impacts of the crisis. The worst that any government would do is to embark on policies and programmes that would further worsen the impact of the crisis on its economy and people. That is why sensitive governments are cautious before taking any action.

For me, it is better to delay the budget than to waste the 2009 fiscal year when it would prove insolvent in footing its bills as projected. Government hopes to finance the deficit from several sources including proceeds from privatization, recall of $200m from Nigerian Trust Fund of AfDB and from excess crude account, etc. But it is pertinent to ask how long would these last when these accounts are not recouping new funds? Besides, it assumes that the crisis would dissipate in a matter of months.

The president had shelved the budget presentation on two occasions and the impression was that he was taking time to avoid making costly mistakes. A thorough analysis should have been done to ascertain how the current economic realities around the world would affect Nigeria and how the economy would perform on quarterly basis throughout 2009 using the worst scenario.

It would have made more sense to me if the analysis had been made using the 1998 price regime of $10 or at best $14 per barrel of crude oil. This may sound too pessimistic but the truth is that it is a benchmark that would give the president rest of mind to the extent that the fear about oil price falling below that level would be slim. In the circumstance, the country would still have a budget to operate with excess revenue over that benchmark.

Ten years ago when the price of oil stood at that level, the country didn't collapse. As a matter of fact, the general economic performance was better than now. But by benchmarking the budget on a $45 per barrel of oil, which has already failed barely shows that not much rigor has been put in arriving at the indices used. The country stands to lose at the end as government would have reason for none performance if the situation gets worse.

Given the prevailing ugly situation worldwide and the economic adjustments being made by even the most stable economies like the United States and Japan, there is no guarantee that the budget whose success or failure depends on oil price in at least the next 12 months would do much to alleviate the economic predicament in the country. If the 2008 budget that was literally swimming on excess liquidity from oil revenue could perform so badly without anything to show due to poor implementation, what do you expect from a budget that is hinged on deficit and expecting to be financed from uncommon sources?

President Umaru Yar'Adua had on December 2, 2008 proposed a budget of N2.87 trillion for the fiscal year 2009. The break down showed a recurrent expenditure of N1.649 trillion and a capital expenditure of N796.7 billion. That shows that more funds would be used in running the bogus establishment of government while less will be applied in building new infrastructure facilities that would enhance economic development. The budget didn't depart from the usual platitudes of allocating funds as deemed fit to some sectors that were considered priority.

But nothing is said about boosting industrial development, which would in turn create jobs for the teeming unemployed youths in the country. The fact that ours is an import dependent economy has not attracted the attention of government to do something to reverse it. How do we solve the problem of unemployment facing the country? How would this country develop with a dead industrial sector?

Furthermore, the budget was based on a daily production of 2.292 million barrels of oil per day. I'm sure that the President had taken the crisis in the oil-producing region into consideration. The militancy in the oil region is already affecting production output and has in fact reduced it drastically. When this is added to the proposed OPEC production cut, there will be little left for Nigeria to sell to fund the budget. It is perhaps on this ground that Odein Ajumogobia, minister of state for energy (petroleum) the other day remarked that Nigeria might reject further OPEC production cut.

While the Central Bank Governor, Professor Chukwuma Soludo keeps insisting that the current global recession won't affect Nigeria, it is important to stress that this is based purely on the financial sector. The banking sector alone can't develop this economy no matter how stable it is.
The perceived stability in the banking sector has not impacted positively on the population. This is because the other complementary sectors like infrastructure, agriculture, industrial productivity and transportation are lacking. The result is mass unemployment and high inflation as virtually all consumables in the country are imported.

Can we therefore, in all honesty say that this country is experiencing boom? The answer is capital NO. What we are facing is depression. When the United States, Japan and countries of the European Union talk of their economies facing recession, they are right because productivity is low and consumer demand is also low. Measures being adopted in these countries are aimed at energizing the economy by injecting liquidity so that big corporations that are laying off staff would reverse the trend and consumers on their own would have cash to spend.

As a matter of fact, all the negative indices that warranted the US and Japan to declare recession have been with us. The fact that Nigerians depend less on government on daily basis to survive doesn't mean that we are not already depression. The earlier we realized that Nigeria is in depression, which in fact began over a decade ago, long before the current global crisis, the better for us and the more government would have come up with a more pragmatic budget to deal with the situation.