OKONJO-IWEALA RESPONDS TO FALSE ALLEGATIONS ON BUDGET 2014

 

OKONJO-IWEALA RESPONDS TO FALSE ALLEGATIONS ON BUDGET 2014

 

*HIGH RECURRENT EXPENDITURE HISTORICAL, COMPOUNDED BY PENSIONS

 

*BORROWING GOING DOWN; NEW LOANS CONCESSIONAL

 

*FG IS LEVERAGING ADDITIONAL FUNDING FOR HOUSING, AGRIC, RAIL AND POWER

 

The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala has roundly refuted several personalized allegations against her by some Senators during the recent Senate budget debate. Whilst thanking the majority of the Senate who understand the issues at stake, she states that a few made allegations and accusations not based on fact. Though government is continuous and the Minister has no desire to shirk her responsibilities, the effort to personalize these issues on the basis of inaccurate information is unfortunate and must be roundly refuted.

 

The first point made by some Senators is that she is responsible for the rising recurrent expenditure, which according to them rose “from 69 percent in the 2013 budget to 76 percent in the 2014”. This is inaccurate, and at this stage, it is important to recount the recent trend of the government’s recurrent expenditure, as shown in Figure 1.

Source: Budget Office of the Federation

The fact is that during 2010, the government awarded salary increases of 53% across the board to the public service, which increased the wage bill from N856.9 billion in 2009 to N1.36 trillion in 2010. At the time, finances were inadequate to back this award, and the government had to increase domestic borrowing significantly to cover the shortfall. This rise in government domestic borrowing, from N524 billion in 2009 to N1.36 trillion in 2010, is clearly shown in Figure 2, and is also the singular cause of the country’s rising domestic debt profile, from 14.83% of our Gross Domestic Product (GDP) in 2009 to 17.98% of GDP in 2010. The rise in salaries is also reflected by the sharp increase in the recurrent expenditure to 74.4% in 2011 (see Fig. 1).

Source: Debt Management Office. Note: Debt-to-GDP ratio is as at Sept 2013. Following the successful reconstruction of States’ domestic debts, ratio on 22.66% in 2013 include States’ debt. FG only is 19.6%.

 

The Honourable Minister of Finance – Dr. Ngozi Okonjo-Iweala was not in government when these events took place. Please note that President Goodluck Jonathan has focused on reversing this trend. Since 2011, various measures have been introduced, leading to a steady decline in recurrent expenditure from 74.4% in 2011, to 71.47% in 2012, and then to 67.5% in 2013, as shown in Figure 1.

 

However, it is important to note that under the proposed 2014 budget, the recurrent expenditure will rise to 74%, for two reasons:

 

(i)           A decline in the Budget base: Total expenditure of N4.64 trillion in the proposed 2014 is about a 7% decline from the 2013 budget level of N4.98 trillion. From a mathematical standpoint, this reduction in the budget base will result in a slight increase in the weight of the recurrent expenditure in the budget, which in absolute terms, has increased from 2013 levels.

(ii)          Payment of Pensions: It is also important to note that the country is yet to fully absorb pension’s implications of the 2010 wage increases. Starting in 2013 budget, this Administration commenced tackling the payment of outstanding military pensions, and Budget 2014 will further address civilian pensions. We have been under pressure from many quarters, including Senators, to integrate the civilian component of pension, and doing so will further increase the recurrent budget. Will the Senators blame Okonjo-Iweala for this?

Secondly, on the issue of excessive borrowing, it is noteworthy to mention that the flow of domestic borrowing has actually reduced, from N852 billion in 2011 to N588 billion in 2013, as shown in Figure 2, a borrowing of N572 billion proposed in the 2014 budget. Furthermore, for the first time in the history of our domestic debt, the Finance Minister ensured the repayment of N75 billion of our domestic bonds. She further set up a sinking fund of N25 billion per annum to support the retirement of maturing bonds as above, rather than roll them over. This is directly contrary to the allegation that she is responsible for excessive borrowing within the economy. To also help the country lower the cost of debt service, DMO has made a minor switch in debt strategy to external borrowing (from multilateral finance organizations like the African Development Bank, China EXIM Bank, and the World Bank) at zero or very concessionary interest rates

While it is important for us to debate the budget, it is also behoves us not to misinform Nigerians, demonise individuals based on false information and mischaracterize the nature of budget development in the country. A large number of lies are being told against the budget by those who do not care about the impact of their falsehood on the economy and the image of the country.

While acknowledging that the budget has some imperfections which we are working hard to fix, the large number of positives in terms of policies and resources must not be forgotten. A few examples, as laid out in the Minister’s budget speech:

1.    In addition to the N18.5 billion budgeted for the housing sector, Budget 2014 will leverage over N100 billion for a new mortgage refinance company that will create millions of jobs and provide affordable homes for millions of Nigerians.

2.     The budget will leverage considerable resources from internal and external sources to support the agricultural sector

3.    The budget will support the ongoing massive repairs and reinvigoration of infrastructure in roads, rail, power and aviation.

This is the truth that no amount of contrived allegations can conceal.

Paul C Nwabuikwu

Special Adviser to the Coordinating Minister and Minister of Finance

 

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