…Recurrent spending makes up two-thirds of govt’s budget
Oscarline Onwuemenyi 03 September 2015, Sweetcrude, Abuja – President Muhammadu Buhari’s is under a lot of pressure to cut spending in the face of falling oil prices.
Having seen the price of oil collapse and Nigeria’s economy grow at the slowest pace in at least five years, he now has to deliver a budget that may make or break his credibility with voters and investors.
Analysts say key to his budget challenges will be cutting back on a bloated bureaucracy, which swallows up two-thirds of government spending through salaries, allowances and running costs for officials, civil servants and functionaries. Only 12 percent of Nigeria’s 4.493 trillion naira ($22.6 billion) budget this year was allocated to capital projects.
The amount of recurrent spending is “a huge worry for a developing country like Nigeria,” Stanley Achonu, the head of operations at BudgIT, an organisation that works to bring transparency to public spending, said in an interview. While the country can make some savings in the budget, “we can’t halve it,” he said.
The government earns about two-thirds of its revenue from the export of oil, the price of which has plunged by more than half in the past year to below $50 a barrel. The last budget passed by Buhari’s predecessor, Goodluck Jonathan, was based on an oil price of $53 a barrel.
Buhari “expects a budget where recurrent spending is going to be lower than it currently is, and where there will be more for capital expenditure,” his spokesman Femi Adesina said while discussing the process with the press last week in Abuja. He added that savings will come through cutting waste, rather than firing workers or reducing pay-checks.
The budget is due to make its way through lawmakers’ committees in the final quarter of the year.
Plunging oil revenue curbed economic growth to 2.4 percent in the second quarter from 4 percent in the previous three months, and prompted the central bank to impose foreign-exchange restrictions to shore up the currency as reserves dwindled.
The naira has dropped 7.8 percent against the dollar on the interbank market this year and has been trading in a range of 197 to 199.75 per dollar since the end of March. It was at 199.25 in the first week of September.
“The budget is something Buhari has to get right, and he has to move swiftly on, but as there are still no ministers, it’s going to be difficult,” Laura Barber, an intelligence analyst at AKE Group, said. “Beyond security and his anti-corruption campaign, his policy statements are very vague, which causes concern.”
In the absence of a cabinet, analysts are looking at Buhari’s previous term in office, when he ruled Nigeria as head of a military junta from 1983 to 1985, for clues on how he will proceed.
During that period, he cut the budget, imposed a public-sector recruitment freeze, and tried to nurture Nigerian manufacturing by raising import duties and restricting some purchases. This import-substitution drive failed to kick start domestic production, with many businesses forced to close as a result of the rules.
Key to Buhari’s credibility this time around is his selection of finance minister. Ngozi Okonjo-Iweala, who held the position in Jonathan’s administration, was a former World Bank managing director and largely respected by international investors for helping to reduce Nigeria’s debt burden.
The finance minister must be a strong candidate, who “can say: I will cut the recurrent spending because there are poor people in this country,” Ben Murray-Bruce, a Nigerian senator from the oil-producing Bayelsa state, said by phone from Abuja. “The money saved can go on education, on the power sector, on the infrastructure deficit.”