Nigeria, Supplementary Budgets and Money Illusion

When, on Monday, December 11, 2023, the Minister of Finance and Coordinating Minister of the Nigerian Economy, Mr Wale Edun, appeared before the Senate Committee on Finance and Budget, his sole message was the announcement of an impending supplementary budget for 2024. Edun was upbeat and cocksure that because of the huge and unexpected inflow of monies into the Federal till, the President Bola Ahmed Tinubu administration is about to make some top-ups to the N27.5 trillion budget even before the final approval of the National Assembly.

The Minister’s optimism and proposal for a supplementary budget came as a huge surprise to most Nigerians, because the reality of the economy is that the Government is cash-strapped; literally going cap in hand, seeking for loans from everywhere. But Edun told the budget panel that “there has been tremendous improvement in the economy; the revenue performance is encouraging, it is expected to continue to be encouraging.” He also alluded to the works of the fiscal policy and tax reform committee, which he said would make fundamental changes—including digitalization and greater efficiency in tax collection.

The minister said definitively: “If we have a solid revenue performance, we will come back and I am sure Mr President will authorize the process to return to the National Assembly to appropriate extra revenue. That is the situation we are all looking forward to.” In the 2024 Appropriation Bill presented by President Tinubu to the National Assembly on 29 November 2023, the projected deficit of N9.18 trillion shall be financed essentially by new borrowings totalling N7.83 trillion, among others.

Undoubtedly, the Coordinating Minister for the Economy may have all the information that form the backdrop of his optimism and pontifications. However, given the monetary and fiscal quagmire in which Nigeria has been enmeshed for quite some time, it looks too hasty for Mr Edun to yet begin to practically clink the glasses. For Nigeria that floated its currency and thus, had it sharply devalued, every foreign exchange inflow will certainly amount to so much (in the local currency terms).

Today, every U.S. dollar available to Nigeria amounts to over N1000 (one thousand Naira). This means that even the minimal forex inflow into Nigeria from crude oil sales translates to so much Naira—and this could be the money illusion that Mr Edun and his ilk are celebrating—and warming up to appropriate through supplementary budgets. If by 29 November 2023 when Mr President presented the 2024 budget proposal to a joint session of the National Assembly, the Finance Minister could not see clearly enough to come up with a realistic budget estimate, then, something is definitely amiss.

Barely two weeks after President Tinubu presented the N27.5 trillion budget for 2024, the administration is already seeing an entirely different revenue (inflow) scenario to now cobble ‘another budget.’ This is obviously self-indicting: economies are not run in ‘fits and starts.’ It was this unorthodox mind-set that the Finance Minister, Mr Edun fed into the interim leadership of the Central Bank of Nigeria (CBN) when he (Edun) functioned as (the only ever) Monetary Policy Adviser to the President. That mind-set and queer thinking reflected in the wholesale floating of the local currency (Naira).

The same unorthodox reasoning led to the relinquishing of the entire foreign exchange (FX) market to the reign of free market or the ‘invisible hands’ of demand and supply. This is in a country that is openly confronted by an acute shortage of FX; and yet largely import-dependent, with inflow from crude oil sales as its mainstay. In the past six months or so, the import and impact of these Edun-inspired policies have brought Nigeria’s currency (and indeed, the economy) to the nadir. All socio-economic indicators have continued not only to miss targets but to go against projections.

The potpourri of policies have seen inflation rate pushing towards 30 per cent mark by year-end 2023; it is already standing at 27.33 per cent as at end-October. Exchange rate of the Naira against the dollar (whether in the official of parallel FX market) is already over N100/US$. The persistent challenge of scarcity of FX is yet unaddressed; even the so called ‘market forces’ seem to have been jettisoned by the CBN. In truth, the workings of the FX market or the determination of the Naira exchange rate are getting shrouded in secrecy—with the epileptic supply of FX to the market by the apex bank.

Oil production and sales are seriously threatened by the bizarre phenomenon of oil theft, pipelines vandalism and outright sabotage on oil assets in various locations across the country. While the 2024 budget is optimistically premised on oil production of 1.78 million barrels per day (mbpd), Nigeria’s current production level only hovers around 1.3 million barrels per day. And at no time in recent years has Nigeria been able to meet its OPEC-allocated quota of about two million barrels per day. Given this trend, OPEC, from all indications is about to cut Nigeria’s quota to something below its 2024 budget benchmark (about 1.5 mbpd).

Also, the price of crude oil in the international market is already below the 2024 budget benchmark of US$77.97 per barrel. In recent weeks, crude oil (Brent grade) had been selling at around US$74—US$76 per barrel. And obviously this poses a threat to the N27.5 trillion budget. So, if not money illusion, where lies the root of the Finance Minister’s optimism—to justify a supplementary budget even before the passage of the 2024 Appropriation Bill as presented by Mr President?

When the income expectation of the Government is decomposed, inflow from corporate income tax (CIT) and personal income tax (PIT) are also being threatened by the impact of recent economic policies. A report shows that the manufacturing sector (in Nigeria) suffered about 400 per cent increase in net foreign exchange loss to N466 billion in the nine months ending September. Sector operators said (in the Manufacturers Association of Nigeria, MAN, report) the current forex situation has compounded the pressures coming from the removal oil subsidy, Russia-Ukraine war, among other adverse developments.

The operators said the sector now bleeds from multiple points as a result of exchange rate revaluation losses. Specifically, the MAN report shows that top17 manufacturing companies listed on the Nigerian Exchange Limited (NGX) indicated that while their gross earnings rose (in the first nine months 2023) as they increased the prices of their products, their profits crashed as a result of the multiple pressure points eroding their financial stability. This trajectory will automatically translate to decline in CIT volume and value payable by these firms. And should the trend persist, many of them could be forced into bankruptcy in a short while!

In point of fact, the damage caused by recent monetary/fiscal policies to the financial conditions of businesses has been part of the excuses for the exit of some of them from Nigeria in recent months. The dangerously weakened purchasing power of the consumer has suddenly led to sharp drop in the sales value/volume of these businesses—turning them to huge loss makers. The Chief Financial Officer of Procter & Gamble (P & G), Andre Schulten, alluded to this when he announced the exit of the company from Nigeria recently.

Mr. Schulten said, “It is difficult to do business in Nigeria as a dollar-denominated organization and the macroeconomic reality in Nigeria.” Speaking further, Schulten said: “The other reality that arises in some of these markets is that it gets increasingly difficult to operate and create U.S. dollar value. So, when you think about places like Nigeria and Argentina, it is difficult for us to operate because of the macroeconomic environment.”

Surprisingly, as these blue chips are exiting Nigeria, the Finance Minister is seeing sudden improved inflow of money into Government coffers to warrant a supplementary budget. Definitely something is wrong somewhere; and it is certainly a product of warped reasoning!

• The author, Okeke, a practising Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, lives in Lekki, Lagos. He can be reached via: [email protected]