Kola Banwo is a Senior Programmes Officer at the Civil Society Legislative Advocacy Centre, CISLAC. In a chat with ADAM ALQALI, he speaks on the 2016 Appropriation Bill, arguing that although the budget has good intention it may not achieve its goals
What do you make of the proposed 2016 budget as presented to the National Assembly by President Muhammadu Buhari?
The budget has good intentions, looking at the deliberate attempt to increase the capital share of our budget. We have always insisted that if you want development, affect the life of the citizens, enhance their welfare and create jobs, you will have to invest more in terms of capital expenditure.And so there is an effort to increase the
capital share of the budget to 30%, we have been having less than that.
There is also provision for social investment in the budget, including a school feeding program and unemployment benefits even though there will be challenges implementing that. There is again a shift from dependency on oil revenues to non-oil sources of revenue, which is also good because the only way you can grow any economy is by depending on sustainable sources of revenue which the oil revenues are not:they are unpredictable.
Therefore, the idea to diversify and seek for other avenues that are likely to be more reliable, more certain and predictable to fund the budget is good. But the budget also has its own flipsides which have to do with the issue of implementation. For instance, even though we have less recurrent expenditure and seemingly more capital expenditure, it is a deficit budget, meaning what we expect in terms of revenue is less than what we plan to spend and that means we need to borrow.
We already have foreign and local debts that are being serviced and we want to borrow more locally and externally. therefore , introducing a new debt profile that will also require servicing. Even though one can argue that if you invest such debts in projects that have the capacity to grow the economy then the payment of the debts may not be a problem, but we all know that servicing of debts is always a problem. We will have to be borrowing over a trillion out of the over 6 trillion, which is huge chunk.
And the issue of dependency on the non-oil sector, we have not tried it before and so there will be challenges with it, which are that we will now be trying to diversify the economy, but to diverse the economy you will need resources and revenues to invest in the economy, which means you will need to generate more non-oil or independent revenues from sectors like customs and excise, tariffs etc. Otherwise, you will need to increase taxes, it is good to increase tax but it should be progressive; based on the principle of the ability to pay. Unfortunately, the unemployment rate is high, the poverty level is high, small and medium enterprises, SMEs, are not doing well. So, until you diversify the economy, you cannot increase tax net, you will have to depend on the tax net to increase tax revenue and if the tax system is not properly managed it will aggravate poverty and inequality.
VAT for instance, may be increased and that is a tax that is indirect; it’s regressive, it doesn’t favour the poor. If you only want to tax luxury items there is no problem with that but when you increase tax across the board, without being considerate you may end up driving some people further deep into poverty and increasing inequality.
As such, no matter how good a budget is, if the process of its implementation will not bring about improved welfare for the majority of the citizens it is of no use.
The other concern is the benchmark for oil which is $38 per barrel. At the moment, it is less than $20, so our deficit has been widened even before the budget is passed.
For this, you will need to borrow more than you plan to do to be able to make up for the deficit, otherwise you won’t be able to implement the budget. Moreover, the amount we need for servicing the debt has increased whereas it should be going down. Servicing a debt is a matter of obligation but it is a serious challenge.
How challenging do you think servicing this debt could be?
At the moment we have budgetary allocations for servicing the debts but what I am saying is there is a problem when you borrow and still owe more; then you will need to increase what you need to service the debts in the future. The administration will last for 4 years but government is a continual process, so it is good to plan well ahead. It is going to be challenging servicing those debts and you will have to choose between servicing debts and investing in infrastructure, debt servicing is an obligation, they are products of contracts so at some points it takes pre-eminence over other things as you will have to be channelling funds you will invest to servicing debts. That is the challenge I see.
Do you think the 30% allocation to capital expenditure is a big deal?
No! It is not a big deal, we have done 30% and 40% under Obasanjo and Jonathan, perhaps it is big deal because we think we now have a government that will actually deliver and invest prudently. Otherwise, if it is in terms of percentage allocation, we have done it before.
Proposal is one thing and implementation is a different ball game and that usually depends on the revenue flow. Like I said, we already have a shortfall in terms of revenue flow, so the implementation is already endangered.
The budget is largely going to rely on the non-oil sector in terms of its financing. How big do you think is the potential in the non-oil sectors of agricultures and solid minerals?
The potentials are there but the reality you cannot say. It is believed that every state in Nigeria has one solid mineral or the other in commercial quantity, but to invest and explore that also requires huge capital. This investment will require the involvement of multinational companies and what we usually do in this part of the world to attract them is give them incentives and therefore forego potential revenues.
We give them tax holidays; allow them to repatriate 100% profits instead of being invested within the country.
The agricultural sector is okay but again you need a comprehensive agricultural policy that promotes value addition and agro-processing because that is the only way you can create jobs for the people who will in return pay income tax. You can also have tariffs from export, but that also requires some investment. Based on the allocation in the 2016 budget, for me, even though the intention is good, it is difficult to see how agriculture and solid minerals will contribute to diversifying the economy, in the short run.