TELL Cover Page
By Festus O. Egwaikhide
There is much to be said about a country’s budget. If well designed and implemented, it can serve as a potent instrument of resource mobilisation and allocation. It specifies the revenues, expenditures and borrowing requirements of the government within a given period of time, usually a year. Fiscal measures are also part of the budget. Budgetary policy is an important part of macroeconomic policy whose primary objectives come down to accomplishing economic growth, price stability, full employment and favourable external balance.
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Before the presentation of Nigeria’s 2016 budget, the Medium Term Expenditure Framework, MTEF, and Fiscal Strategy Paper, FSP, had been submitted to the federal law makers for consideration in line with the Fiscal Responsibility Act, FRA, 2007. The law specifies that MTEF and FSP should cover five major areas. These are: macroeconomic outlook; fiscal measure, socioeconomic priority and financial objectives; revenue and expenditure framework; debt stock and debt sustainability analysis; and contingent liabilities.
The scope of the fiscal document covers the five areas. In the MTEF document, macroeconomic developments with the fiscal outlook in the preceding three years and projections regarding the path of macroeconomic variables (aggregate output and inflation) in the next three years were provided. Single digit inflation is expected, while on the average, the economy would grow at 4.76 per cent per year.
The plausibility of the assumptions underlying the budget is being debated. For instance, the forecast for economic growth and the benchmark price for crude oil are overly optimistic in view of the weak global economy. Some experts have suggested a lower oil price benchmark. This suggestion has several implications because in any economy, everything hangs together. A lower benchmark means that the oil revenue estimate and, therefore, expenditure, has to be revised downward. Economic growth has to be less than the initial figure since oil revenue is a major driver of economic activities. Non-oil revenues have to fall because aggregate output is the base on which they were calculated. The magnitude of the total budget (revenue, expenditure and borrowing) and macroeconomic targets must be adjusted fittingly. The budget, as it is now, is over-ambitious.
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