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Capital budget imbroglio & subsidy

Source: huhuonline.com
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The appearance of Ngozi Okonjo-Iweala, the Coordinating Minister of the economy at the legislative hearing on the implementation of budget 2012 did not seem to have assuaged the threat of impeachment of President Jonathan by members of the House

of Representatives.   The Legislators have positioned themselves as altruistically sympathetic with increasingly impoverished Nigerians for unsatisfactory implementation of budget 2012 by the Executive.   Dr. Iweala's defence that it is virtually impossible to have hundred per cent budget implementation was recognized as diversionary.   Indeed, the divergent and inconsistent rates of implementation bandied by the honorable Minister did not help matters either, and the Legislators were obviously rankled by the Minister's subtle inference that their apparent enthusiasm for budget implementation was driven by the derivable 'selfish' dividends from cash backing for constituency projects.  

The Minister confirmed that recurrent expenditure had expectedly been fully implemented, but noted that institutional challenges with regard to due process, stalled government performance in the disbursement of the N1.5tn 2012 capital budget.   Critics, nonetheless, recognize that federal budgets in the last 30 years or so have never recorded satisfactory implementation, and there has never been any credible explanation for the disbursement of the billions of naira, which remained unspent at the end of each year.

Nigerians may, however, be misguided for expecting huge leaps in social welfare as a result of appropriate and full disbursement of capital budgets.   Indeed, the seemingly traditional pattern of less than 30 per cent allocation for capital projects cannot truly support rapid infrastructural enhancement for a country of over 160 million people.   Furthermore, tangible progress is further precluded by the prevalent culture of impunity and corruption, which inevitably significantly contracts the already meagre capital budget.  

In reality, the 2012 capital budget of N1.5 trillion (about $9bn) would be mere peanuts when considered alongside our prevailing huge infrastructural inadequacy.   For example, the funding requirements to grow power capacity to the optimal level of over 40,000MW would be in excess of $40bn; additional requirement for road and rail infrastructure, international standard educational and health institutions, etc, etc, would most certainly require additional expenditure of at least another $40bn.   This is a clear indication that the urgency for the remediation of our infrastructural deficits cannot be satisfactorily ameliorated from annual capital votes!

The question, therefore, is, how can we redress our perverse infrastructural state?   The answer is embedded in the realisation that the private sector must truly be the correct driver of growth; private domestic and international investors could, for example, garner over $100bn in any one year for investment purposes, where there are real possibilities of   good rates of return and 'reasonable security'.

In other words, our infrastructural inadequacies will be adequately addressed with minimal cost to government, when there is an enabling environment that supports the real sector!   Of course, security is a critical aspect of an enabling economic environment, but the huge foreign direct physical investment in relatively volatile countries like Iraq and Libya, probably underscore the mindset of investors regarding the issue of security.

In fact, this writer has consistently maintained that our infrastructural deficits provide great market opportunity for private investors in search of high returns.   Regrettably, foreign direct investments into Nigeria have frantically made a beeline for the non-socially enhancing area of government borrowing.   It makes eminent sense that our government's willingness to pay 15 - 17 per cent rates of interest for its 'purposeless' loans is a great attraction, particularly for investors from those countries where such government risk-free borrowings, when necessary, attract modest yields, generally below five per cent!

Our government's outrageously high cost of borrowing inevitably triggers destabilising and disenabling commercial lending rates of over 20 per cent to the real sector.   This in turn instigates higher and higher cost of production, and ultimately fuels the rate of inflation to socially oppressive double-digit rates, which ultimately make our products uncompetitive.   Instructively, no economy is known to have ever developed in leaps and bounds with such anti industry and antisocial   rates of interest and inflation with continuously contracting consumer demand.   In other words, our infrastructural deficits cannot be reasonably ameliorated by paltry capital votes; worse still, the situation cannot be salvaged either, by the attraction of huge returns for private investors.   The super returns of over 15 per cent from our government's treasury bills and bonds remain a safer bet than the vagaries and threats to direct physical infrastructural investment in an unfriendly business environment.

In her response to the question of national solvency, Dr. Iweala assured Legislators that although our financial situation was healthy, nonetheless, cash flow management remains a challenge.

Irrespective of the actual percentage of capital vote reported to be already disbursed, the literal interpretation of the Minister's statement is that there may not be enough cash to meet government budget commitments for capital projects as an when they fall due.   Indeed, with current national reserves approaching $40bn, and CBN's liberal bailouts to banks and AMCON, Nigerians may wonder why the government should decry lack of operational funds!   The reality, of course, is that the Federal Executive cannot constitutionally dip into our reserves for any purpose whatsoever, without first submitting a   supplementary appropriation bill to the National Assembly for approval.   Indeed, in April this year, the Federal Executive submitted such a bill for an additional sum of about N700bn being provision for the unexpected retention of partial subsidy in fuel pricing.   Inexplicably, the National Assembly is yet to give its approval to this bill; consequently, the capital budget remains N1.5trn as enacted.   We may deduce from Dr. Iweala's earlier briefings on subsidy payments that, in spite of the paltry approval for less than N300bn in this year's budget, almost N900bn had been paid to fuel marketers to cover outstanding subsidy obligations from last year!

In other words, in the absence of any approval for supplementary appropriation, it is probable that the N600bn excess amount, alledgedly, already paid for fuel subsidy this year may have been sourced from the approved capital budget of N1.5trn.   Consequently, there is a great possibility that there would be no funds left over for actual infrastructural enhancement, if additional subsidy payments for Feb - Dec 2012 are also settled from the extant approved capital budget.

Indeed, until the issue of subsidy is benignly resolved with an appropriate payment system as advocated in this column, there may be little hope for infrastructural enhancement from the capital budgets each year.

By Olujimi