The making of a consumption budget

The federal government has once again set for itself a bunch of unattainable economic targets. The 2023 Appropriation Bill is a bewildering compendium of unachievable economic targets which borders on deceitful wishful thinking.

The Appropriation Bill portrays a consumption budget which has been the trend in the last seven years. Out of the 20.5 trillion earmarked for federal government services in 2023, only a miserable N5.35 trillion (less than 20 per cent of the budget proposal) is allocated to capital projects.

The lion share of N15.2 trillion (more than 80 per cent of the budget) is marked for consumption. Debt service and petrol subsidy will consume 123.7 per cent of estimated revenue.

The strange thing about the 2023 Appropriation Bill is that the deficit of N10.78 trillion stands menacingly at a record 4.78 per cent of gross domestic product (GDP), almost two percentage points above the three per cent threshold set by the Financial Responsibility Act of 2007.

Government reason for defiantly breaching the three per cent threshold is that Nigeria faces existential threat which needs the massive borrowings to overcome.

The federal government would need men from the planet Mars to meet the ambitious targets set by the Appropriation Bill.

The budget exchange rate of N435.5 to the dollar is more of an exercise in misplaced optimism. The 2022 budget had N410 to the dollar as exchange rate.

Ironically, about three months to the end of 2022 the official exchange rate is an awful N430 to the dollar. We may end 2022 with an exchange rate well above the N435 target set for the 2023 Appropriation Bill.

Architects of the 2023 Appropriation Bill may be incurable optimists defiantly ignorant of developments in the parallel market where the naira trades at a humiliating N720 to the dollar. Ironically that is where forex is raised for well over 90 per cent of the transactions in Nigeria.

Inflation rate is another unattainable target of the 2023 Appropriation Bill. The 2022 budget had an inflation rate target of 12 per cent. The target was set when inflation was surging in the economy at well over 15 per cent.

Architects of the budget hoped to bring it down to 12 per cent at the end 2022. With less than three months to the end of 2022, inflation surges along at well over 20 per cent.

There are strong indications that we may end 2022 with inflation rate perilously close to 25 per cent. Everything on ground points to higher inflation rates.

Even as Russia’s senseless invasion of Ukraine has set the price of crude oil heading for the stars, Nigeria is not benefitting from the bumper harvest from oil exports. Revenue is plummeting precipitously because crude oil thieves are selling more oil than the federal government.

Nigeria’s forex reserve is in such a precarious situation that foreign airlines had to threaten to boycott Nigeria before the CBN could grudgingly allocated them pittance to remit proceeds of ticket sales bordering on $15 billion tied down for years because of scarcity of forex.

The forex supply situation was even worsened in August when government daily oil exports dropped below one million barrels due to uninhibited theft.

With Nigeria as an import-dependent economy where 80 per cent of finished goods are imported, the rate of inflation is primarily determined by the exchange rate of the naira.

The naira’s humiliating depreciation due to paucity of forex is an invitation to surging inflation rate which architects of the 2023 Appropriation Bill treacherously ignored.

Economic indices in government budget projections are so unattainable that the organized private sector now makes its own projections for sane planning.

The organised private sector plans with the parallel market rate of N720 to the dollar.

Even the government inflation rate is regarded as misleading. For the 2023 budget the more conservatives in the organised private sector are planning with 25 per cent as expected inflation rate.

Some even plan with inflation rate as high as 30 per cent because of the uncertainties in the exchange rate of the naira and Nigeria’s senseless dependence on imported goods. Nigeria imports all its refined petroleum products.

The GDP growth rate target in the 2023 Appropriation Bill is regarded as too ambitious. That again is based on the factors on ground.

Last month, the Central Bank of Nigeria (CBN) hiked its monetary policy rate (MPR), which guides lending rates in the banking system, to 15.5 per cent in a desperate bid to reduce the pressure on the naira in the foreign exchange market.

In a bid to further curb liquidity surge which is blamed for the shameful depreciation of the naira at a time when Nigeria should be smiling to the banks with bumper harvest from crude oil exports, CBN raised cash reserve ratio (CRR) to a record 32 per cent.

That means that for every N100 billion mobilised by a bank for on lending to fund users, N32 billion will be tied down in CBN vaults to reduce the amount of naira chasing the few dollars in the forex market.

That decision will drastically reduce the quantity of funds available for lending for job creation and economic growth. The CBN cash squeeze policy comes at a time when the federal government will raise trillions of naira in the local money market to balance its ambitious consumption budget.

The massive deficit in the 2023 Appropriation Bill which would be partly funded by the local money market will almost certainly crowd out the productive sector from the market and seriously constrain its ability to create jobs and grow the economy. That makes the 3.7 per cent growth rate in the 2023 Appropriation Bill something of a tall order.

The long and short of it is that the federal government views the budgetary process as more of a ritual than the presentation of attainable economic targets that would guide the organised private sector to grow the economy. It borders on organised deceit.