Jide Akintunde, Managing Editor/CEO, Financial Nigeria International Limited

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Subjects of Interest

  • Financial Market
  • Fiscal Policy

The 2024 budget and the rule of law 11 Dec 2023

The Nigerian budget is first presented by the President to a joint session of the National Assembly as an appropriation bill. The lawmakers then put the bill through the legislative process of debating, screening, and ultimately approving it, after which the President signs the approved version of the bill into law. Therefore, the budget is a law, promulgated as an appropriation act.

Generally, little enthusiasm has greeted the 2024 Appropriation Bill, which President Bola Tinubu presented to a joint session of the National Assembly on 29 November 2023. Citizens worry that, like previous budgets, the next one would probably make no difference to their sliding fortunes. Nevertheless, as Nigerians try to make sense of the proposed budget for 2024, one thing is clear: If the bill is passed as presented, it would break an important law – the Fiscal Responsibility Act (FRA), 2007. Whereas the FRA sets the limit of fiscal deficit at 3 percent of GDP, the 2024 Appropriation Bill has a deficit of N9.18 trillion, which represents 3.88 percent of GDP.

It is true that the FRA makes accommodation for a higher deficit to address threats to national security. However, the nation’s national security challenges have remained fairly the same for a decade. As a result, it should not be addressed by fiscal emergency in 2024. Budgetary provisions to address insecurity in the country ought to have been brought under the ambit of fiscal responsibility.

Therefore, the 2024 budget proposal should be seen to have failed its first test: legality. It is not a credit to the government that the deficit, in percentage terms, is lower than that of the 2023 budget, which was 6.1 percent of GDP. This year’s budget broke the law, just like the proposed budget for next year will do if passed without amending the deficit provision. Lack of legal compliance with the FRA is a serious act of illegality. The budget, which underpins public expenditure, requires compliance with relevant laws. If the budget is tainted by illegality, partially implementing its provisions and embezzling the budgetary funds would be par for the course. Little wonder that the yearly budgets are usually under-implemented; they also underperform and serve as enabling instruments for public sector corruption that is at a very high level and suffocating Nigerians and the economy.

It is unprofessional for public officials to be purveyors of fiscal indiscipline. If those who prepared the budget present themselves as lacking the discipline of legal observance, the promises of the budget would be unfulfilled. And whereas the welfare impact of the yearly budgets has been muted, the fallout from unmooring the fiscal deficits – or weakening fiscal responsibility – has been devastating. One of the headline figures of the 2024 budget proposal is the debt service obligation of N8.25 trillion, which represents 30 percent of the N27.5 trillion total expenditure, or 45.03 percent of the total projected revenue.

The proportion of the debt service cost is likely to be much higher as the revenue projection is likely to be missed. The budget benchmarks oil price at $77.96 per barrel (pb). With the Brent oil futures trading at $81.44 pb on the day the budget was presented, the benchmark is probably not conservative enough. As of 3 December 2023, the oil futures had dipped, trading at $79.56 pb. Similarly, the oil production benchmark of 1.78 million barrels per day seems ambitious. But more concerningly, it indicates continued overreliance on the proceeds of oil export for funding the budget. Although oil is projected to account for 5.21 percent of GDP in 2024, it is nevertheless forecasted to contribute 43.3 percent of the federal government’s revenue.

The 2024 Appropriation Bill is christened “The Budget of Renewed Hope,” in line with the campaign slogan of President Tinubu. It would require a magnifying lens to see the avenues for realising the hope. The two key sectors with high social impact – education and health – received underwhelming allocations. Education is proposed to receive 7.9 percent of the budget, while health has been allocated 5 percent. Both fall short of the respective global benchmarks. The member states of the United Nations Educational, Scientific and Cultural Organisation (UNESCO), to which Nigeria belongs, agreed on a level of educational funding of 4-6 percent of their respective GDPs or 15-20 percent of public expenditures. The World Health Organisation (WHO) also sets a target of 5 percent of GDP for health budgets.

Granted, these benchmarks cannot be met in one-shot from where Nigeria has been. Therefore, the first full-year budget of the current administration could have done no more than signal its intentions of moving the country in the right direction towards meeting the recommended education and health funding targets. Indeed, establishing the foundation for a new Nigerian economy is a fitting responsibility of the Tinubu administration after the disastrous eight years of his predecessor that witnessed the collapse of the rule of law – no less in the fiscal sphere.

By embracing the rule of law, the country can get on track with its development aspirations. But by ignoring the rule of law, the country has no chance of success with its development goals. Missing the fiscal responsibility target by such a small margin (of less than one percentage point) is an accommodation for lawlessness; it couldn’t have been because of necessity. The administration should now work with the National Assembly to adjust the budgetary figures to keep the deficit at a level not higher than 3 percent of GDP, in accordance with the FRA 2007.

Jide Akintunde is the Managing Editor of Financial Nigeria publications. He is also Director, Nigeria Development and Finance Forum.