2018 budget lacks capacity to grow the economy, analysts say

Despite commendations for the timely presentation of the N8.6 trillion 2018 National Budget to the National Assembly by President Muhammadu Buhari, analyst say the budget lacks the capacity to grow the economy.

The analysts who identified varying flaws of the budget specifically noted that the budget does not seem to be expansionary and that Nigeria may not be spending its way to growth with the proposed expenditure plan.

Their views were gathered at the recent 2018 Budget Seminar organised by the Securities and Exchange Commission (SEC) in Lagos, aimed at ascertaining the way the capital market could contribute and also benefit from the budget of the nation.

Bismarck Rewane, chief executive officer, Financial Derivatives Company Limited, said that though the budget reflects 16 percent increase, it is bogged down by an equivalent 16 percent inflation rate, which indicates an expenditure growth of near zero.

“It is not an expansionary budget; we are not spending our way to growth,” he said, stressing that there were no concrete stimulants for growth in the expenditure plan.

He raised the issue of multiple exchange rates in the economy, which he said was not addressed in the budget, adding that the prevalence of such rates would continue to distort the market.

“Inflationary projection in the budget is not realistic as the government is silent on subsidy on power and petroleum products and minimum wage. The projection for non-oil revenue is not realistic and the deficit gap may widen after all,” he pointed out.

In his assessment, Ndubuisi Nwokoma, a professor of economics at the University of Lagos, described the 2018 national budget as very ambitious but doubted how the government can implement it.

“Oil production is also ambitious. We are being too optimistic without a clear plan of how to achieve our target. Over the years, we have distorted the budget cycle. This will affect implementation and good accounting. Nigeria should have a clear budget cycle and budgetary interferences should be avoided,” Nwokoma stated.

He said the N305/$ exchange rate is not real, adding that he foresees a wide margin in the budget implementation.

“Government ambition is magical. If we hasten the passage of the 2018 budget in February or so, 2017 budget implementation will be inconclusive,” he stressed

The professor of Economics noted that Nigeria is not learning from the challenges or problems of past budgets, especially the 2017 budget and that it is likely the nation fall into the same mess.

Muda Yusuf, managing director of Lagos Chamber of Commerce and Industry (LCCI), noted that the proposed budget shows 30 percent capital and 70 percent concurrent, which presents little increment judging from where we are coming from.

He expressed concern over silence on the issue subsidy in the budget as oil marketers are being owed N80 billion, just as contractors’ arrears is now hitting N2 trillion.

Yusuf specifically noted that the military, police, health, and education were areas for higher recurrent spending giving their critical nature.

Shamsudeen Usman, the special guest of honour at the seminar and former minister of national planning said: “Unless Nigeria gets it politics right, the economy will not work.”

He, therefore, called for close co-operation and understanding between the executive and legislature in order to achieve a budget that will impact the populace.

Usman advocated for a special office for the harmonisation of budget so as to achieve full implementation.

Afolabi Olowookere, head of research at the Securities and Exchange Commission, who was the guest speaker, noted that budgets do affect capital markets indirectly through their impact on growth, inflation, interest and exchange rates.

On the 2018 budget implications for the Nigerian capital market, Olowookere foresees key developments in the equities market, including; preference for equities if the interest rate falls; more foreign portfolio investments if uncertainties in the exchange rate are reduced; and listed companies that are contractors/producers in government preferred sectors benefitting and enjoying increased earnings if government expenditure on cost-reducing infrastructure is pursued effectively.

Looking at stock performance in 2017, Olowookere said the market improved in the year due to improved domestic macroeconomic fundamentals, CBN intervention in the forex market, improved company results, and pension multi-fund structure as well as regulatory initiatives that boost investor confidence.