Another grope in the dark for Nigeria’s 2024 budget

The Holy Book, Chapter 28 verse 29 says: “And thou shall grope at noonday, as the blind gropes in darkness, and thou shall not prosper in thy ways…”

Over the years, every Nigerian annual budget has been titled to give the impression that its implementation will lead the country to an Economic Eldorado. ‘Budget of Hope and Economic Transformation’; ‘Budget of Inclusion and Accelerated Economic Growth’; ‘Budget of Reforms and Sustainable Economic Development’; and ‘Budget of Fiscal Consolidation and Transition’ are some of such beautiful but deceptive budget titles. Under each of these rubrics, the government of the day goes on to propose very lofty policies and programmes, but usually ends up overwhelmingly under-delivering. And this is why on every indicator, previous budgets have remained monumental failures — neither revenue targets are ever achieved nor most (budgeted) projects implemented.

It is against this backdrop that the N26.01 trillion 2024 proposed federal government budget that was recently approved by the Federal Executive Council (FEC) should be taken with cautious hope and optimism. The proposed budget figure marks a substantial 19.15 percent increase from the N21.83 trillion 2023 expenditure estimate. Just like others before it, the 2024 proposed budget promises to focus on infrastructure development, human capital investment, and economic diversification. But before analysing the budget details, it is pertinent to consider its underlying assumptions.

Specifically, it is assumed that in 2024, the price of crude oil will average $73.96 per barrel, an increase from the $70 per barrel assumed in the 2023 budget. The 2024 budget is also predicated on an anticipated rise in oil production to 1.78 million barrels per day, up from 1.69 million barrels per day in 2023. An exchange rate of N700/$ is also assumed for the 2024 budget; a major jump from N435.57/$ assumed in the 2023 budget. Targeted also, is an inflation rate of 21 percent for 2024 fiscal year as against 17.10 percent for 2023.

If these assumptions and proposals are eventually passed by the National Assembly into an Appropriation Act 2024, it means the entire budget is built on a faulty foundation ab initio. By the middle of October, when these proposals were approved by the FEC, the exchange rate of the Naira vis-à-vis the dollar was over N800/$ in the official window while it hovered around N1,200/$ in the parallel (black) market. And yet the FEC went ahead to approve N700/$ as the rate that shall prevail in the foreign exchange market in 2024.

It has since been obvious that one of Nigeria’s major economic challenges is the persistence of acute shortage of foreign exchange (FX) — especially as a largely mono-product and import-dependent economy. It is therefore a warped expectation to believe that the national currency shall soon gain much strength against the dollar and other hard currencies — to stay at N700/$ in 2024. This unlikelihood ties in with another faulty assumption that Nigeria’s crude oil production shall in 2024 stand at 1.78 million barrels per day, from the current level that hovers around 1.45 million barrels per day. The 1.69 million barrels per day 2023 budget benchmark was never attained.

At present, the oil and gas sector in Nigeria is bedevilled by the bizarre problem of massive oil theft, vandalism of oil installations and outright sabotage of production activity, among others. Consequent upon these, Nigeria for several years now has been unable to meet its Organisation of Petroleum Exporting Countries (OPEC) allocated quotas (for export). And this has translated into dwindling inflow from crude oil sales — the major foreign exchange earner for Nigeria. Not much FX inflow comes from non-oil exports so far. It is therefore very doubtful if the encumbrances around oil production/export will give the 2024 budget the shot in the arm, as projected.

Apparently, in the ‘hurricane’ mode of the President Bola Ahmed Tinubu administration to enthrone market forces in its management of the economy, the government had also cancelled the Central Bank of Nigeria (CBN) initiative to drive/stimulate non-oil exports from Nigeria. Thus, the apex bank’s RT200 and Dollar4Naira schemes to incentivize exporters of non-oil products from Nigeria to repatriate their proceeds were all dismantled alongside the multiple FX rates unification ‘fiat’. Right now therefore, there is neither the incentive nor the coordinated drive to make exporters of non-oil items to (patriotically) bring home their FX earnings. Yet, the government dreams of improved FX inflow in no time!

The assumption that the level of inflation in 2024 shall be at 21 percent as against the 17.10 percent benchmark for 2023 is also laughable and unrealistic. Even for the current year, the gap between the hyperinflation rate as at end-September (26.78 percent) and the assumed level (17.10) is almost 10 percent. And, for sure, this trajectory is most unlikely to alter (markedly) in 2024.

In other words, rather than the rate of inflation dipping in 2024, the upward trajectory shall be sustained. This is because there is nothing in place yet to show that the federal government has commenced addressing the incubus.

The unfathomable negative multiplier effect of fuel subsidy removal that has pushed the prices of goods and services through the roof is still unfolding. The pump price of petrol is still rising, and feeding into the prices of all manner of consumer items. FX rates unification (and its resultant Naira devaluation) is another key enabler of cost-push inflation that has come to stay. Economic agents (especially local manufacturers) are spending fortunes to source dollars to import machineries and other critical inputs — and these are reflected in the higher prices of goods and services. What therefore gives optimism to the Government that the rate of inflation shall drop from its present high level in a matter of months is nothing short of chimaera.

It is also worth noting, as regards the 2024 budget benchmarks, that Nigeria is already worrisomely overleveraged: public debt stock as of end-June 2023 is a humongous sum of N87.38 trillion. This has since pushed the debt-service-to-revenue ratio to 73.5 percent; a level that is far above the threshold of 50 percent. This trend amply indicates that a major proportion of the revenue in 2024 would go into debt servicing. Already, a huge sum of N8.25 trillion (of the N26 trillion budget) is being earmarked to service public debt in fiscal 2024. This is even against the backdrop of President Tinubu’s touted $1.5 billion loan from the World Bank and the much-bandied $10 billion ‘soft’ loan announced by Wale Edu, the finance minister, at the just-concluded Nigeria Economic Summit Group (NESG) confab in Abuja.

For now, the 2024 federal budget is merely a ‘heroic pronouncement’ to commence another ‘grope in the dark’ in the search for Nigeria’s elusive economic Eldorado. In truth, economic development goes beyond expression of political will and courage, as recent reforms of the Tinubu administration amply portray. It also goes beyond playing to the gallery or clutching onto some hackneyed economic theories — like market forces — as the rudder. Perhaps, Tinubu and his team should urgently do a reappraisal of their roadmap and strategy!

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