Budget 2016 and the dilemma of a Finance Minister

Finance Minister Mrs. Kemi Adeosun has an arduous task on her hands – funding the proposed N6 trillion 2016 Budget in the face of the government’s dwindling revenue.  Tumbling oil prices and the reluctance of foreign investors to buy into the economy over devaluation are the hurdles she must scale. But, exploring alternative funding sources in taxation, customs duties and diversification of the economy, among other lifelines could help her job, writes Senior Finance Correspondent COLLINS NWEZE.

IF the words of Finance Minister Kemi Adeosun are anything to go by, Nigerians should brace for tougher times. “It is going to be tough and we are going to make extremely tough decisions. We have to control the significant challenge we have around recurrent,” the minister said penultimate weekend. It was at the opening of the seventh annual retreat of Bankers’ Committee in Lagos. She told her audience that the country was faced with what she described as “some fairly significant micro-economic challenges” that require some fiscal house keeping.

“If you look at recurrent at a percentage of our total budget with the just approved supplementary budget, it is about 90 per cent. If we continue in that trajectory, every penny we borrow will go into recurrent,” she said.

In the 2015 Appropriation Act, capital expenditure accounted for just N556.9 billion and  there was no release of votes for capital expenditure until the end of September, when about N139 billion allocated for the first quarter was released.

The Federal Government has been under pressure to diversify the economy from oil, following the tumbling prices of crude at the international market. The government is shifting it priorities to agriculture, solid minerals’ exploitation and the creation of employment opportunities for millions of jobless youths.  But, to achieve the feat, a ready-made capital and substantial local and foreign investments are required.

Beyond diversification and boosting the agriculture and mining sectors, the government has also resolved to crack down on corruption as a way of ending financial leakages.

Already, the government has proposed an ambitious budget of N6 trillion for next year. The vote is N1.5 trillion higher than this year’s N4.5 trillion votes. But, the budget will remain in the realm of a proposal unless adequately funded. The timely funding of the 2016 proposal would, no doubt be Mrs. Adeosun’s testimonial as a finance minister.

Apparently avoiding the pitfalls of the past, the government has earmarked 30 per cent of next year’s budget for capital expenditure with a plan to finance it through incomes from non-oil revenues.

The minister is expected to generate enough liquidity to fund the budget and ensure that the large chunk is used in bridging  infrastructure gap. Most roads, railways and power facilities are either in states of disrepair, abandoned or inadequate.

Mrs. Adeosun, a former Finance Commissioner in Ogun State, took up the plump job at a time the economy needed a redirection. Upon resumption in office, she launched an efficiency unit, based on a UK model. Her target is to uncover excesses and impose such guidelines that would cut cost and eliminate wastages. According to her, government’s spending has been high on overhead than capital and unsustainable.

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Bismarck Rewane, an economist who described Adeosun’s appointment as an “excellent choice,” noted she turned around the financial position of Ogun State when she held the forte as finance commissioner.

Before her four-year stint in Ogun’s government, Mrs. Adeosun was an investment banker with Lagos-based Chapel Hill Denham Ltd. and an accountant at PricewaterhouseCoopers LLP.

Rewane said: “Ogun State’s economy was in shambles. She put the state finances in strong position. She did a remarkable thing, taking the state revenue from a negative position to a positive level. Mrs. Adeosun will face a challenge, bridging the budget revenue shortfall either by raising financing from domestic or international debt markets or any other means.”

He noted that the CBN and the Federal Government have never backed down on their positions to defending the naira from any further devaluation despite less favourable terms of trade.

His words: “We believe that the foreign exchange (forex) markets will be influenced by any directives from the CBN, the current administration, as well as the position of Nigeria’s external reserves, and is therefore unlikely to react to the inflationary trends. We expect the high money market liquidity to drive the demand for forex,” he said.

But, former Executive Director, Keystone Bank, Richard Obire, experience would be needed to drive the economy. “We need to wait and see the new appointment in terms of substantial experience.  The complexity of Nigeria needs to be driven by experienced hands,” he said.

Obire insisted that the performance of the finance ministry would be measured with its ability to raise revenues to match government’s spending needs. To him, the ministry’s job, focuses on being able to understand what the government wants to do and translating it to financial gains.

“Her job is well cut out: It is to match government revenues with the needs of the people. It is also her job to look at both local and international financing sources and ensure that for every naira spent, government and the citizenry are getting substantial value,” Obire said.

The former bank chief said the Federal Government will be working to achieving a reflationary budget, one that puts more money into infrastructure development. He said it will be a challenging task for government because it must spend in the context of its dwindling revenue due to the continued fall of oil prices.

According to Obire, the options open to government to drive its revenues streams are through an effective tax regime and earnings from excise duties from Customs Service. He said the government has to be prudent in its spending by ensuring that every naira spent, comes with the maximum value.

He said: “The government also needs to focus on agriculture as well as Small and Medium Enterprises (SMEs). The Federal Government is looking at sizeable budget in 2016, about N6 trillion, 25 per cent higher than the N4.5 trillion this year. Doing that at a time when oil price is down could be challenging.”

Identifying government as the biggest earner of foreign exchange through oil, he said with the drop in oil process,  the volume of dollar earnings have fallen.

“The task before the minister is straight forward. If government wants to spend a lot of money, the funds must be raised locally and internationally to fund the budget,” he suggested.

Obire called for a high-level of co-ordination between the minister and the CBN Governor, Mr. Godwin Emefiele.

“There should be a good handshake between both parties. This will enable them to tackle inflation and improve the value of the naira. If you look at the trend of devaluing the naira, it has not been favourable to us. We are not exporting to the extent that devaluation will favour us,” he said.

Insisting that a further devaluation of the naira cannot be the answer to nation’s economic woes, Obire called for the strengthening of domestic production. The naira exchanges for N260 to the dollar at the parallel market and N199 at the official market.

A former President of the Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu, said Mrs. Adeosun has been in the system for a long time and therefore needs to put the economic system right.

He condemned the imposition of arbitrary fines on corporate organisations by some regulatory agencies, saying such fines will scare both local and foreign investors.

Unegbu said: “The reign of impunity has to go. The market is being hounded by fines. The regulators are not doing well and they need to be called to order. She has to help stabilise the financial market. The financial market is unstable. The penalties have no foundation. What has the regulators been doing since and who regulates the regulator? The way the regulators are going about it is destabilising the financial market.”

He echoed Obire’s belief that devaluation could hurt the economy, saying, “oil is the major export for Nigeria, if devaluation is carried out now, the economy will suffer. Our export will equally suffer. The people calling for devaluation are doing so because of their own personal interest.”

On debt, Unegbu said government can borrow more, but pointed out that such borrowing must create value for the economy. “It should reduce the domestic debt and encourage growth of more domestic businesses. The government should get more money from taxation and customs duties,” he advised.

“The government should spend efficiently, ensuring that every naira spent gets the maximum impact. Secondly, plugging financial loopholes are going to be one of the key responsibilities of this finance minister.”

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