We are here for very early consultations. we have promised to do a budget that we’ll deliver to Mr President and he will deliver to the National Assembly by the end of September because we want to change the trajectory of budgets in this country so that if we get it early enough we will then be able to start the budget on time provided we’ll see our way through with the National Assembly to also be able to work with them to get the budget out.
If we give it to September, then that will give us a clear two to three months of work, and that is why we said let us start on time with early consultations. The theme of this forum is inclusive growth, but it is also fiscal consolidation with growth. We have this global environment where the Eurozone is contracting and the US is growing very slowly at two percent this year and probably next year, and Japan a little bit robust, at 4.7 percent but also with its own problems and we have seen the emerging markets that were contributing more than 50 percent of global growth also beginning to contract, with India decelerating from 8 percent to 5 percent plus this year and with China going from about 10 percent with a forecast by the Chinese government of about 7.5 or 8 percent and Brazil with about 2 percent. All around the world, the pace is slowing down and we have some serious problems to deal with, and the way forward is not really clear to deal with the periphery countries of the Eurozone; Greece, Spain, Italy even though some recent progress has been made.
This whole global environment and uncertainty is very important because what happens there has direct implication for Nigeria and the way we manage our finances and physical situation going forward. And the reason is that with this global uncertainty and the crisis, global demand is weak and global demand for our primary product which is oil is weak and we’ve seen the volatility of oil prices that we experienced recently in the first quarter where Bonny light was at about $120 on the average. There’s been quite a lot of movement to the point recently where it came down below $90 and even below $84 at a certain point in time before climbing back up towards 100 dollars. As you know we had projected an average $90 per barrel (pb) for oil prices and we had pegged our last budget at $70 but the National Assembly added $2 so we now have it at $72, we need to watch very carefully what happens in the international arena because it also affects what we expect to get in terms of our revenues, even for non-oil products which are beginning to pick up, especially in agriculture, we are seeing some demand for our products. This is critically important as it also speaks of the need for us to look at ourselves and see how we build buffers for the economy that will protect us much more during this period. It means we have to rely on ourselves.
The buffers come in two ways, short term buffers and long term. In the short term we have to increase our savings which means that the excess crude account which is about $5.8 billion now will have to be beefed up to $10 billion which means that we’ll have about three months of expenditure for the entire country in that account that will buffer us should any eventualities arise and give us time to make the adjustments. We also have the Sovereign Wealth Fund which has made very good progress and I think we’re now in the last stage before we launch it and announce the names of the board members; that also gives us about a billion dollars. If we watch carefully our reserves and physical situation maybe the pressure of foreign reserves will also lessen and we can build up reserves. The trajectory where we were losing reserves has reversed itself somewhat. Should we be able to build up our reserves to $50 billion we’ll be in a reasonably good shape. We are at about $37 billion now and just about a year ago our reserves were almost down to $32 billion which was on the way down when oil prices were high. It means that fiscally our policy in the country is loose, now we are building back up and on both camps.
In the long term the key is to have a budget that supports the diversification of the economy because that is what will make this country and economy more robust in the longer term. How can this diversification be done when we are talking about a budget of fiscal consolidation?
I attended a meeting recently with thirty of the world’s top financiers to chart a way out of the crisis although they couldn’t really see the way, they wanted to know how this can impact Africa and what we are doing. I explained to them that the debate about stimulus or fiscal consolidation is not necessary, because in Nigeria we are doing fiscal consolidation with growth, and I was asked to explain what I meant. You can tighten your fiscal measures and direct the limited resources you have into those priority areas for your economy which will unleash growth. Growth doesn’t always mean that you have to spend more; it means that you can prioritise, underpin the growth sectors of the economy and still unleash growth. If for instance we’re able to tackle issues in the power sector and put the resources we have considerably into that sector and into infrastructure, within the same budget, I think we are going to see growth unleashed in the economy far more than it would have been. It’s not a question of either or, it is a balance between the two and how you channel and prioritise your resources. For the medium term we’re going to have to continue a budget of fiscal consolidation with growth but it means we have to work harder not to have a budget as usual; not the incremental budgeting where departments are given a little bit more than what they had all the previous years.
In this budget, we want to have a thorough look at the sectors and areas of expenditure. We want to have a look at those areas where the President wants to make his mark and deliver for the economy. Those are the areas we will try even harder than we did last year to improve on. We started last year, we were able to channel resources to security, power, more on health than education and a few other sectors; agriculture that underpin the economy.
We are going to continue that outlook, but to do that we really need to look at the MDAs. We have a job done by the Steve Oronsaye committee which shows multiplicity of overlaps. What can be done in the short term about this? Many of these agencies are underpinned by law, what it means is that before you can do anything you have to go to the National Assembly and get a consensus that these agencies can be streamlined or merged. But there are some that don’t have that underpinning and we want to look at them very carefully to see if savings can be made from there or if there are ways to merge them and if there are ways we can make things work much better for the sectors that really need the resources to grow.
This is the kind of non-incremental thinking that we are trying to do, to even look at some cases of zero base budgeting as we have it in some departments. Can we just go back to the basics and ask what they are really delivering for the economy, what are they producing? We then look deeply into the budget to see those expenditures that are non-essential. Last year we got a hundred billion from administrative expenditures or some part of overheads where we buy computers each year, furniture etc., things that you don’t have to repeat each year and yet they keep coming. We question the agencies much more about these kinds of expenditures to root them out, but above all to think very imaginatively. The biggest chunk of expenditure we make in recurrent is personnel. Personnel budget has been in an upward trajectory and behind that are human beings which make it not an easy thing to deal with.
Is there anything we are doing like the Integrated Personnel and Payroll Management System that will computerise all government employees at the federal level. Is this something that will yield fruit? We think also of fiscal policies which will interest the private sector, what will be the fiscal policies of the government, how do we support and underpin those sectors that we think are needed in this approach of physical consolidation with growth. We’ve made efforts in the agricultural sector when we talk about supporting the rice value chain and the cassava value chain where we want to substitute cassava flour for wheat.
We have not just talked about it we’ve underpinned it with some important fiscal policies to move in the right direction. What else do we need to do, what do we need to look at in order to help those in our private sector who are trying to strengthen the economy. Not all the private sector will be pleased, because there may be some policies that support and underpin one group, which may not be as favourable to another but we have to open our eyes to focus on what the key priorities of government are and to use our fiscal policies in a very sensible way. These are some of the issues we’ll be looking at. There will be many commentaries on crafting the budget with civil society and Private sector making suggestions. This is the very beginning of our trying to craft this, it is a listening exercise for us, and we want to hear your views on how you think in the light of what I’ve said so that we can have a better budgetary trajectory.
What can we do to engender a better working relationship with the National Assembly, because this is an issue? We are ready and open to be scrutinised on the budget. We’ve not really ever hidden anything from civil society. I believe so much in transparency and sharing of information, any aspect of the budget you need to ask information about, we are ready and open to dialogue with you on those issues. Give us your views and be candid about it, all we can do is to listen and have you help us and see how we can integrate some of your suggestions into the crafting of the budget.
