Budget Review: Will the 2016 Budget

resuscitate the Nigerian economy?

February 5, 2016

Wilson Erumebor, Economist

rumewilson@gmail.com

@rumanio

The year 2015 was a tough year for Nigeria. The country recorded one of the lowest

growth profiles in decades with GDP growth averaging 3.1% in the first nine months of
the year, compared to 6.3% in the previous year. For the most part of the year, inflation
rate trended upwards to a peak of 9.6% in December, the highest since December 2012.
Similarly, dollar scarcity and rationing arising from the fall in crude oil prices was
dominant while government revenues and consumer spending fell significantly.
Furthermore, unemployment rate rose to 9.9% in 2015q3 from 8.2% in the previous
quarter. To resuscitate the Nigerian economy would require massive investment in
infrastructure,

skills

&

training;

enacting

and

enforcing

enabling-business

laws/incentives to stimulate production of goods and services for local consumption and
exports and having a clear fiscal and monetary policy direction for the economy. This
report attempts to examine whether the 2016 budget has the necessary provisions
required to resuscitate the economy.

About seven months after assuming office, President Muhammadu Buhari in December
2015 presented Nigerias 2016 Appropriation Bill before the National Assembly,
detailing the administrations spending plans for 2016. The bill, which proposed an
expenditure of N6.08 trillion for the federal government (FG), the highest in the nations
history, is themed the Budget of Change with specific focus on infrastructure, job
creation and promotion of social welfare.

The 2016 budget is significant for a number of reasons. First, it is the first budget
presented by President Buhari with the expectation that it covers a good number of the
campaign promises that were made prior to the 2015 general elections. Consequently,
many Nigerians have placed high hopes on the budget, which of course is a vital
document through which Change will come to Nigeria. Second, it is an expansionary
fiscal policy tool that has the potential to cure the uncertainties that has trailed the
Nigerian economy since early 2015 even as each Ministry can begin work to deliver their
plans to Nigerians. Third, the budget remains important in complimenting monetary
policy, which has struggled to keep the economy afloat since 2015.

Ideally, the budget is a subset of a broader economic policy, which details how the
government influences the economy and performs three overarching roles: Allocative,
Stabilization and Distribution functions. The absence of such coordinated and clear
macroeconomic policy framework raises the level of uncertainty on the direction of the
economy and as such limits the movement of capital and investments in productive
sectors.

The 2016
budget is an
expansionary
fiscal policy
tool that has
the potential
to cure the
uncertainties
that has
trailed the
Nigerian
economy since
early 2015 even
as each
Ministry can
begin work to
deliver their
plans to
Nigerians.

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Nigerias economic reality suggests the need for an

look at allocations in the 2016 budget suggests the

expansionary budget to stimulate economic

absence of any major improvement in its structure

activities. The total expenditure of N6.08 trillion

as allocations in the previous budget were merely

represents an increase of 36% from last years

revised upwards. Simply put, the budget looks

budget of N4.46 trillion. A breakdown of the

business-as-usual except for a few intervention

budget shows that capital expenditure accounts for

programs.

26%, while recurrent takes a share of 74%. Over the

last 8 years, except in 2015 where capital

The focus on special intervention programs is a

expenditure (capex) had a share of 13%, capital

welcomed development that will likely improve

budget has accounted for at least 26% of the annual

the welfare of targeted Nigerians. The current

budget and this therefore implies that allocation for

administration plans to spend N500billion on

capital projects in 2016 did not record any

special intervention programs including free

significant improvement in percentage terms,

education for science, technology and education

when compared with other budgets. In nominal

students in tertiary institutions, recruitment of

terms however, the capital budget was increased

500,000 teachers, conditional cash transfers and

by 188% from last years figure to N1.62 trillion. If

feeding for home-grown primary school

adequately implemented, this aspect of the budget

children in public schools. With these programs, it

will have enormous impacts on infrastructure,

is no doubt that the administration is ambitious to

GDP and job creation efforts of labor-intensive

deliver its campaign promises, however and more

sectors like cement and construction.

importantly, the modalities of operation for each

of the program should be adequately planned for,

Recurrent

expenditure

increased

in

2016.

with input from the private sector and other

Recurrent budget may reach N5 trillion by 2017

stakeholders.

Another important feature of the 2016 budget is the

increase in recurrent expenditure also referred to as

Revenue projection for 2016 likely to be unmet

the cost of running the government. When

On the revenue side, the budget projects N3.86

compared with 2015 budget, recurrent expenditure

trillion to be earned by the FG in 2016. For the first

(non-debt) expanded by 1.6%, debt servicing by

time in decades, non-oil revenue accounts for a

56% and statutory transfers declined by 6.4%.

significant share of projected revenue at 79%,

Overall, Federal Government (FG) total recurrent

while oil revenue projection takes 21%. This

expenditure of N4.48 trillion for 2016 is higher than

implies that Nigeria has been forced to rely on

the total budget of 2015 and consists of overhead

non-oil revenue to finance the budget, following

cost (51%) and personnel cost (49%). The rising cost

the decline in crude oil price and the absence of

of governance can be traced to a higher wage bill in

fiscal savings. With a crude oil benchmark price of

2016, recurrent components of social intervention

$38 per barrel, predicating a focus on taxes and

programs, service wide votes and allocations to key

independent revenues, and proposed crude oil

agencies including the Presidency (N39 billion)

production of 2.2 million barrels per day (mbpd),

National Assembly (N115 billion), National Judicial

there is a huge possibility that projected crude oil

Commission (N70 billion), among others.

revenue of N820 billion may be overstated, given

the weak outlook of crude oil prices (traded

At a period of significant decline in crude oil

US$25pb on January, 14, 2016), persistent supply

revenue, one would have expected a deliberate and

glut in the international market and the unstable

significant cut in recurrent allocations to the

crude oil production volumes in Nigeria.

National Assembly and other agencies. A detailed

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Furthermore, the government plans to raise

debt profile at N12.6 trillion (US$65.4 billion) as at

N1.51 trillion from independent sources and

December 2015, the additional debt in 2016 would

N1.45 trillion from taxes, with no plans to

increase total public debt to N14.5 trillion,

increase taxes for businesses but expand the tax

representing 16% of GDP, which is far below the

base. According to data from the Budget Office,

stipulated 30%-40% limit set for developing

actual FG non-oil revenue stood at N1.08 trillion

countries like Nigeria. Therefore, based on debt to

in 2014 suggesting that the 2016 projected

GDP, there is still room to borrow. However,

revenue of N3 trillion is a huge feat, given the

Nigeria must exercise caution as debts are paid by

harsh

revenue rather than GDP and also given the low tax-

operating

environment

and

other

constraints facing businesses in the country.

to-GDP ratio. Furthermore, incurring more debt in

the current year would mean adding pressure on

In summary, the possibility of achieving the

future budgets due to debt servicing obligations.

projected revenue is low and this would result

in either an under-performance of the budget

Structural challenges limit the implementation of

with respect to capital expenditure or a situation

capex

where the government overly exceeds its fiscal

One of the biggest risks facing the budget is the poor

borrowings for the year.

implementation of capital projects, which is a major

concern for stakeholders in the economy, and to a

Based on debt to GDP, there is still room to

large extent influences the level of impact of the

borrow

budget on the private sector and the economy. In

The 2016 budget has a record deficit of N2.2

Nigeria, annual capital budget implementation has

trillion, which will be largely funded by

never achieved 65%, and has averaged 52% in the

borrowings- N1.88 trillion and recovery of

last seven years. In the 2015 budget for instance, out

stolen funds. This amount to be borrowed is

of the capex budget of N556 billion, only N250

higher than the capital expenditure of N1.62

billion (45%) had been released for projects as at

trillion and suggests that the government would

September 2015. In the case of the 2013 budget,

technically

recurrent

implementation rate stood at 60%, higher than the

expenditure during the year. With Nigerias

52% average, partly as a result of timely passage of

borrow

to

fund

Performance of Capital Expenditure 2008 - 2015

Source: Budget Office of the Federation

**Amount utilized for 2015 is for 9 months

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the appropriation bill into law when compared with

other budgets.

As a country, we must
inculcate a culture of
timeliness in the budget
process. to ensure early
disbursement of funds and
improve the performance of
capital expenditure.

The following factors are responsible for the poor
performance of capital budgets in Nigeria:

Undue elongation in the process to pass the

Appropriation Bill into law

Inadequate revenue occasioned by reliance

on oil

Delays in the bidding process

Delays in processing payments for projects

Delays in obtaining approval from Ministers

and Permanent Secretaries at various stages
of the procurement process

Lack of planning and experience in project

management

of

some

Ministries,

Department and Agencies (MDAs) officials

Poor project supervision and lack of

transparency and accountability.

For the 2016 budget to have the desired impact on

the economy, it is essential for the government to
address these challenges with the goal to improve
performance of the capital budget.
Recurrent expenditure has always outperformed
capex
expenditure

which must focus on delivering projects that has the

potential to improve the business environment as
well as living standards of the citizens.

What should we do as a country going forward?
cost of governance
Irrelevant and luxury items must be pruned out
of the budget. In the State House (Presidency)
Budget of N39 billion for instance, purchase of
motor vehicles, buses, computers, furniture,

capital

we must reverse this position in the 2016 Budget,

The government must earnestly pursue reduction in

While

capital expenditure. To move forward as a country,

records

lower

implementation rate in the budget, the same cannot

be said of recurrent expenditure. Over the years, the
performance of this aspect of the budget has
remained at almost 100% and in some cases, actual
spending has exceeding budgeted expenditure. In
2013 for instance, actual amount spent as recurrent
expenditure (including debt servicing) exceeded the
budgeted amount by 6%, while non-debt recurrent
expenditure showed an implementation rate of 99%,
according to the Budget Office; whereas capital
expenditure recorded an implementation rate of
about 60% in the same year. In essence, revenue
shortfall in government budgets seldom affects
plans for recurrent expenditure, which in most cases
is often prioritized by the government vis--vis

kitchen equipment etc. accounts for over N4.6

billion, while maintenance and repairs of
buildings, furniture, plant and machinery and
equipment totalled N2.7 billion for the year. Other
cost items include purchase of 33 Seater coaster
buses- N158 million, purchase of 16 Seater Toyota
Hiace Coaster Buses- N204m; purchase of BMW
saloon cars- N3.6 billion; linking of cable to
driver's rest room at Villa admin- N322 million;
construction

and

provision

of

recreational

facilities- N764 million and upgrade of internet

infrastructure in state house- N111.4 million. These
costs raise concerns on whether the current
administration

is

truly

pursuing

lean

government in the face of economic downturn. If

this trend continues, recurrent expenditure in the
2017 budget may rise to N5 trillion, while capex
will relatively continue to receive meagre
allocation.

 Review downwards the National Assembly As a country, we must inculcate a culture of

budget. Crude oil price has declined by over 70% timeliness in the budget process. A situation where
since June 2014, however the National Assembly the budget for 2016 is still being debated in the first
budget only saw a decline of 4% from N120 quarter of the budget year would only stall
billion in 2015 to N115 billion in 2016. NASS implementation. It is important to introduce a
budget is higher than allocations to key structured budgetary process as practiced in the
ministries like Youth Development, Agriculture United Kingdom and other countries. In India for
and Science and Technology. In the best interest instance, the budget is presented to the House on
of the nation, our lawmakers must consciously the last working day of February (themed Budget
work

towards

reducing

their

recurrent Day) and it is expected to be passed by the House

expenditure.

and come into effect on April 1, the start of the

countrys financial year.

Budget assumptions must be realistic and take into

cognizance current and future economic Adopting a similar approach in Nigeria would go a
developments

long way to ensure early disbursement of funds to

Lower and realistic crude oil benchmark price contractors and overall improve the performance of
and other key variables would facilitate capital expenditure.
adequate planning and encourage savings for
the rainy days when crude oil price exceeds the There must also be disclosure on the performance of
benchmark in the budget. Nigeria must adopt the budget in a frequently and timely manner
conscious efforts to build its economic buffers (budget implementation report), in line with section
such as Excess Crude Account (ECA) or the 30 (2) and 50 of the Fiscal Responsibility Act, to
Sovereign Wealth Fund (SWF).
update stakeholders on budget variances, and status

of selected projects.
Place emphasis on growing the capital component
of the budget and enhance its implementation
Despite the challenges that the 2016 budget might
Capital expenditure is the most important aspect of face, the budget is unique in its disclosure of specific
the budget that connects with the common man on cost items of MDAs. This is a huge step towards
the street. The government must set targets to ensuring accountability and transparency in the
ensure that capital budget implementation exceeds public sector. However, more disclosure is needed
85% each year. The situation where recurrent on the spending plans of the National Assembly and
expenditures get over 95% implementation rate and the Universal Basic Education Commission (UBEC).
capital budget suffers low implementation rate must Whether the budget will meet up to the expectations
be addressed. To do this, the government must of Nigerians and deliver the promised change
reform the procurement process to remove depends largely on the implementation of
bottlenecks, undue bureaucracy that causes delays. institutional and structural reforms targeted at
In addition, where savings are made through the improving the budget process.
blocking of leakages, funds should be channeled to
capital projects. If unnecessary recurrent items are
removed from the 2016 budget, capex could be as
high as N2 trillion, which would have a much more
bigger impact on the economy.

APPENDIX
Capex share of total budget
35%

34.2%

32.8%
29.0%

FG Recurrent Budget

31.2%

28%

25.6%

26%

2,277

3,395 3,338 3,357

3,395

3,577

3,904

4,475

1,948
12.5%

2008

2009

2010

2011

2012

Capex Share of total budget

2013

2014

2015

2016

Linear (Capex Share of total budget)

FGN Recurrent Expenditure: Budget vs Actual (Trillion Naira)

Breakdown of 2016 Budget

Statutory
Transfers
6%

94%

2
Capital
Expenditure
26%

2008 2009 2010 2011 2012 2013 2014 2015 2016

106%

101%

101%

3
3.2

3 3.4

3 3.4

3.6
3

4 3.5

2010

2011

2012

2013

2014

99%

93%

2.1

Recurrent
Expenditure
44%

2009
Debt
Servicing
24%

Total Recurrent Budget

Actual Recurrent Expenditure

Implementation rate

Source: Budget Office, Ministry of Finance, National Planning

Wilson Rume E. is an Economist with years of experience in research, finance and advocacy. Wilson has
made several television appearances discussing issues on the Nigerian Economy, Education and Youth
Development. He has also delivered keynote speeches at conferences/seminars and has participated in a
number of high- profile engagements including the World Bank Stakeholders Session on Governance
and Accountability Framework in Basic Education in Nigeria; World Bank Stakeholders Workshop on
Skills Development; Presentation to the transition team of President Buhari among others. In May 2015,
He was selected to be among the first cohort of the Global Colleagues Program of Academics Stand
Against Poverty (ASAP).

Wilson is a research analyst, with interest and expertise in monetary policy, fiscal policy, industry
analysis, macroeconomic management, Education, Youth Development and poverty studies.
All views expressed in this report are those of the author and do not represent the views of, and should not be attributed to, any
organization he works for.