The Federal Executive Council-endorsed Medium Term Expenditure Framework 2018-2020 has now been laid before the National Assembly awaiting parliamentary approval in accordance with the Fiscal Responsibility Act. The MTEF will derive the force of law when approved by the lawmakers and its key parametres will be the basis of the policy, revenue and expenditure profile of the 2018 federal budget. The MTEF reviews the macroeconomic projections for three previous years and forecasts for the medium term while providing a fiscal strategy, revenue and expenditure framework, analysis of debts and contingent liabilities. It reviews the fiscal, economic and political risks and their likely impact and mitigating circumstances. But how realistic are the projections in the MTEF especially its Fiscal Strategy Paper? This discourse seeks to interrogate and make recommendations for the finetuning of the executive proposals.
The MTEF contains an expenditure profile of N8.595tn, N8.979tn and N9.081tn for the fiscal years 2018, 2019 and 2020. But we shall be more concerned with the fiscal year 2018 projections. It comes with a deficit of N2.9 trillion which is 2.61 per cent of the GDP. The oil benchmark price is $45pb whilst the production is estimated at 2.3mbpd; exchange rate of N305 to $1. For the year 2017, Nigeria projected crude oil production at 2.2mbpd whilst we recorded an average of 1.9mbpd as of the time of producing the MTEF. This is a shortfall of 300,000bpd. What has changed to warrant an increase in production forecast by an extra 100,000bpd? If the extant situation continues in 2018, we may have a shortfall of about 400,000bpd which will further make our revenue framework unrealistic.
The decision to fix the oil production at 2.3million barrels a day shows our continued fixation with oil rents. With proposed cuts by the Organisation of Petroleum Exporting Countries and considering the fact that Nigeria was exempted simply because we were in a recession and our finances were in very bad shape, this production volume seems ambitious and may not be realistic in the circumstances. Even if we have the capacity to produce this volume, the dynamics of the international oil market may not likely allow us to produce this much. Furthermore, fixing the oil benchmark price at $45 is overly optimistic. Developments in technology and climate change dynamics point to a progressive reduction in demand for crude oil over the next coming years. The benchmark may not be realised. Under the risks, likelihood, impact and mitigation schedule, the Federal Government states of domestic oil production shocks: “With renewed government commitment to dialogue, engagements and implementing lasting solutions to the Niger Delta agitations, it is expected that production cuts due to militancy will significantly reduce, except in the event of technical breakdown”. This does not seem to be a proper reading of the political economy of the Niger Delta dynamics. With the increased demand for restructuring and devolution of powers and the arbitrary manner the calls have been handled by the National Assembly and the ruling party, the APC, coupled with the unprovoked deployment of soldiers in various operations in the region, the country may witness another round of agitations if the Federal Government and the ruling party continue on this trajectory. Of course, this will affect the harnessing of oil rents.
Fixing the exchange rate at N305 to $1 is a bit arbitrary and unrealistic. Who gets foreign exchange at that rate? Everyone knows the actual worth of the naira against major international currencies and as such, the fixation which is not in tandem with the market reality shortchanges the Federation Account and the Federal Government. Using the actual exchange rate will raise more naira for the Federal Government and as such reduce the deficit considerably.
The Federal Government’s share of non-oil revenue especially in CIT, VAT and Customs and Excise of N794.6bn, N207.8bn and N324.8bn does not seem to be overly optimistic. They are realisable and can even be surpassed if and only if the relevant changes are made in increased transparency and accountability of the government to the people. This also applied to state IGRs. The MTEF states that key legislative amendments are required to operationalise some of the specific interventions targeted at improving the IGR. Collection efficiency of major revenue generating agencies will also be improved upon. Beyond this proposal, Nigerians need to see more of their tax money in action, to improve their welfare and provide them with basic amenities. Then, the willingness to voluntarily comply without the threat of sanction will be activated.
The Federal Government fights shy of articulate ideas on domestic resource mobilization as an alternative to unsustainable debts. At the sectoral level, whilst the government acknowledges the goal of universal health coverage, it does not indicate in concrete terms how it intends to fund the goal. A vague statement bereft of specifics is no longer needed at this point of our development. While welcoming the commitment to providing one per cent of the Consolidated Revenue Fund for the Basic Health Care Provisions Fund, the statement that “ Government is also working to ensure vaccine security and financing as Nigeria transitions out of the Global Alliance for Vaccines and Immunisation programme by 2022” is hanging. Nigerians have been calling for the establishment of the Nigerian Immunisation Trust Fund and for reforming the National Health Insurance Scheme to make health insurance universal and compulsory so as to pool large sums of money for healthcare finance beyond the miserly budget contributions. The government needs to be bold and innovative in raising additional funds for health financing.
Again, there is no commitment at the level of the works, power and transport ministries to get domestic resources for roads, railways and the power sector. For roads, the establishment of a Road Fund and Road Authority is long overdue. The MTEF is silent on getting private sector investors including Nigerians to invest in the railways as we are still fixated with laws and policies that restrict the railways to only government funds. And if any procedures have been set in motion for new laws and policies, the government seems not to be in the driving seat. What about getting new Nigerian investors into the power sector? For how long shall we allow the sector to drag down our development, economic growth and well-being?