The ding-dong over 2014 Budget benchmark

Senate-Chamber524 November 2013, Lagos – While expectations are high that the two chambers of the National Assembly may soon harmonise their differences over the 2014 budget benchmark, and pave the way for the presentation of the Appropriation Bill by President Goodluck Jonathan, Ndubuisi Francis reports that the nation is treading a familiar path

For two years in a row, the executive and legislative arms of government are entangled in a web of disagreement over budget benchmark. Last year, the former had proposed a budget predicated on $75 per barrel, which the two chambers of the National Assembly jettisoned.

While the Senate rooted for a benchmark of $78 per barrel, the lower chamber opted for as much as $82and later came don to $80. It became a ding-dong affair for quite a long time before both chambers came to a compromise with $79 per barrel as benchmark for the 2013 Budget.

The same scenario is again playing out while the process of sending the 2014 budget to the mills is on.
Under the 2014 – 2016 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) submitted to the National Assembly in September, the executive had proposed $74 per barrel as the 2014 budget benchmark.

Flowing from that, an understanding was reached between both arms of government. Consequently, a joint Senate and House Committee of Finance and Appropriation, raised the benchmark to $76.5 per barrel.
The upper chamber (the Senate) kept to the understanding and subsequently passed the MTEF/FSP, while the House raised the benchmark to $79 per barrel, an action that unsettled the executive arm.

First, President Goodluck Jonathan was billed to present the 2014 budget proposal on November 12, but had to postpone the action by one week— precisely Tuesday November 19.
However, as the entire nation and the National Assembly waited for President Goodluck Jonathan to keep faith the appointed date, this was not to be.

In justifying the action, the Presidency had cited the failure of the two chambers of the National Assembly to harmonise their positions on the crude
oil benchmark.

In a letter to the lawmakers, the had sought for a further deferment of the presentation until the lawmakers had reached a consensus on the appropriate benchmark on which revenue projections from the sale of oil is reached.

The Presidency had explained its concern over the disagreement between both chambers of the legislature on the crude oil benchmark.

It said the decision to defer the exercise was done in the national interest, although THISDAY sources hinted that the action was a proactive move to prevent the president from being heckled by some aggrieved Peoples Democratic Party (PDP) legislators.

But a day after Jonathan’s failure to present the budget, the Senate constituted a six-member conference committee saddled with the mandate to harmonise differences in the crude oil benchmark price for next year’s budget with the House of Representatives.

The committee, which is headed by the Chairman, Senate Committee on Finance, Senator Ahmed Makarfi (Kaduna North) has other members of the committee as Senators Patrick Ayo Akinyelure (Ondo Central), Ita Enang (Akwa Ibom North-east), Bello Mohammed Tukur (Adamawa Central), Smart Adeyemi (Kogi West) and Enyinnaya Abaribe (Abia South).

The mandate of the committee is to harmonise the various crude oil benchmarks approved by both chambers of the National Assembly.

The House of Representatives is also expected to also raise its own six-member committee to harmonise their positions and possibly pave the way for the president to present the budget next week.

As hope rises that the harmonisation move may pave the way for the president to present the budget next week, Chairman, Senate Committee on Appropriation, Senator Ahmad Muammadu Maccido, has already disclosed that the Senate and the House could resolve the issue quickly.

“If we iron this out this week, Mr. President would be able to present the budget by next week. God willing, we will pass the budget this year. We have the rest of the year to do that. So I am sure we can do it,” Maccido said.

While efforts are on to harmonise the various figures being bandied by both chambers of the parliament, reports said the position of some senators is that $76.5 crude oil benchmark for the 2014 budget is ‘too’ low when juxtaposed with the $108 per barrel of crude in the global market.

Many have expressed apprehension that the nation is travelling this path again so soon after the 2013 budget experience where the two chambers of the parliament had to differ for a pretty long time with each other over the benchmark price.

It is instructive that when the controversy over the 2013 budget benchmark crept up, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala had given an insight into why a benchmark of $75 per barrel was necessary for the 2013 Budget.

Although the National Assembly finally had their way with $79, she had
insisted that $75 was “the sensible price that will shore up the economy and make for macro-economic stability.”

The benchmark , she said, was “based on an econometric module that estimates five and ten years moving averages”, adding that “government cannot just take the number from anywhere; you have to have a basis for developing the benchmark.”
She did not rule out the input of the National Assembly, stressing that the legislature “can smooth it out with a dollar here or there, to round it up.”
But a dispassionate appraisal would show that it makes economic sense to align our benchmark with what is obtainable in other oil producing nations. For instance, Algeria’s benchmark is $37, Venezuela $50, Qatar $55, Kuwait $60, Saudi Arabia $60, Oman $75 and Angola $77.

In 2013, the budget was predicated on an assumed oil production of 2.53 million barrels per day.
The executive arm of government had also argued when the debate over what should be an appropriate that a not-too-high benchmark would help the nation’s macro-economic stability. The argument was that a high benchmark would throw up a lot of liquidity into the system.

This is because a benchmark also affects the quantum of money that goes to the states. Therefore, even if the federal government’s fiscal deficit is reduced, the states are not under that obligation.— most, if no all of them will embark on a spending binge capable of throwing up a lot of liquidity which can lead to higher inflation, depreciation of the exchange rate.
The ripple effect is that the Central Bank of Nigeria (CBN) might be forced to raise interest rates, which the unsavoury consequences for the private sector.

Presently, what the nation is facing is quantity shocks arising from lower oil exports occasioned by oil theft. But have we also looked at a situation where we may likely face the impact of low global demand for oil? The United States of America, which is Nigeria’s highest oil importer is already joining the league of net exporters with the discovery of Shale Oil.

Much Ado About Benchmark
Last year when the benchmark controversy raged, the CBN Governor, Mallam Sanusi lamido Sanusi had faulted the proposal by the House of Representatives to raise the crude oil benchmark in the 2013-2015 MTEF/ FSS.

He argued that raising the oil benchmark does not in any way translate to more revenue for the government because benchmarks are mere projections that could either be realised or not depending on the volatility of the price of oil.

Sanusi explained that even the 2012 Nigeria’s benchmark of $75 per barrel was one of the highest among member states of the Organisation of Petroleum Exporting Countries (OPEC).
According to him, a number of oil-producing countries have a benchmark as low as $30 as a way of ensuring that they do not fall victim of over-ambitious projections that may turn out to be unrealistic.

“The benchmark does not necessarily give you more revenue. You can increase it to $100 if you like, but does that bring money? What is important is to increase crude oil production and sales. The $75 is even on the high side relative to other countries,” he said.

Nigeria, he said has always been concerned about oil benchmarks during every budget year because of over-dependence on the oil sector for revenue and the fact that the economy as a whole is highly dependent on importation.

Sanusi urged the committee to place Rather than fret over oil benchmarks, he admonished the National Assembly to concentrate on how to assist government to plug the leakages in the revenue chain.

“You are talking about oil price and production benchmarks, how do we even know the figures are correct? Does NNPC have a metering system? How do they know how much we produce? What access does the Minister of Finance have to validate the figures emanating from the primary
source of revenue?

“Until we have metering system, we cannot be too sure about these figures. But we have NEITTI and we need to strengthen it because all these arguments on benchmarks will disappear if we know exactly how much we earn and we are sure that all revenues will go into government’s pockets,” he said.

According to him, the solution to budget deficits was not the benchmark but diversification of the economy to enhance the development of the non-oil sector.

Proper Consultations
It is recalled that even after the dust over the benchmark controversy in the 2013 Budget settled, a stalemate was to follow. It was a pleasant surprise that the budget was passed by the National Assembly in record time, judging by the experience of previous years when the passage of budgets were not passed until the new year.

Although the 2013 Budget was passed by the National Assembly in December 2012, presidential assent was long in coming because of some perceived grey areas occasioned by a dearth or perhaps, total absence of consultation between the two arms of government

But considering what is playing out now, was any lesson learnt from the 2013 experience?

Efforts are now concentrated on benchmark. If the controversy over the benchmark is finally resolved, can we say that a seamless 2014 budget is in the making?

Many analysts blamed the impasse over the 2013 Budget to poor consultations between the executive arm of government and the legislature.
Lead Director, Centre for Social Justice (CSJ), Barrister Eze Onyekpere had told THISDAY that disagreement between the two arms of government over the content of the 2013 Budget would have been ironed out before if there had been adequate consultations at the level of budget preparations.

He noted that if the Medium Term Expenditure Framework (MTEF) and Medium Term Sector Strategy (MTSS) would have offered a platform for grey areas to be sorted out earlier.
According to him, the lesson from the 2013 Budget logjam was for consultations to be started early between both arms of government and carried out exhaustively.

Similarly, the Executive Director, Centre for the Study of the Economies of Africa, Dr. Ebere Uneze, advised the National Assembly against padding the budget after the executive arm of government had presented the figures to the lawmakers.

– This Day

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