2005 Budget: Obasanjo Proposes N1.6 Trillion
Differs with lawmakers on implementation of 2004
From Kola Ologbondiyan, Ahamefula Ogbu and Chuks Okocha in Abuja
President Olusegun Obasanjo yesterday presented a budget proposal of N1.6 trillion to the joint session of the National Assembly for the 2005 fiscal year.
The President and the lawmakers however sharply disagreed on the actual implementation of 2004 budget.
Obasanjo, who arrived the House of Representatives chamber of the National Assembly Complex where the joint session held at about 10.30 am, took the dais after the opening remarks by Senate President Adolphus Wabara, to announce that the "2005 Appropriation Bill has been prepared in the context of a medium term expenditure framework that also looks at projections for Years 2006 and 2007."
The president told the gathering that the budget is based on the assumptions of crude oil production of 2.68 million barrels a day (including 150,000 barrels of condensate); NLNG (Nigeria Liquefied Natural Gas) and upstream gas revenues of N53bn; a prudent oil price of $27 per barrel; the continuation of a fiscal rule in which revenues above the $27 a barrel price will be saved for the rest of the year; as well as joint venture cash calls of $4.23bn.
According to him, other assumptions are: a target inflation rate of no more than 10 per cent; a GDP growth rate of between 6 to 7 per cent and reserves at $15 billion or 11 months of import, and additional 2004 oil income (excess crude revenues) for financing purposes of N158bn.
Obasanjo explained that "the crude oil price of $27 per barrel is 8 per cent higher than last year's budget price of $25 a barrel. This is to take into account spending for key infrastructure and millennium development goals (MDGs) related priorities, areas of importance to the National Assembly and feedback from the public consultations.
"At the same time, the price has been kept prudent because of the uncertainties linked to a volatile oil market and OPEC (Organisation of Petroleum Exporting Countries) price windows decision coming up in December 2004. Based on these parameters, we estimate federally collectible revenue for the year ending December 31st 2005 at N3.619bn of which N2.902bn is of oil revenues, N563bn of non-oil taxes, and N100bn of independent revenue.
"Federally retained revenue under the existing revenue sharing formula is estimated at N1.304bn made up of federal government share of the federation account of N1.179bn, share of VAT of N25bn and independent revenue of N100bn. An aggregate expenditure ceiling of N1.618bn is being proposed. This results in a deficit of N314bn or 2.9 per cent of GDP.
"The deficit will be financed with the excess crude savings of 2004 -- N158bn; privatisation proceeds N4bn, sales of government property in Abuja and around the federation N15bn, looted fund recovery N10bn, access to long term funds from the capital market. N70bn. This modest borrowing is really to help develop Nigeria's capital market for medium to long term funding and to give it depth which is very much in line with government practice elsewhere," Obasanjo stated.
He also maintained that of the earmarked spending, N76bn "is statutory transfers comprising N33bn to the National Judicial Council; N17bn to the Niger Delta Development Commission (NDDC); and N26bn to the Universal Basic Education (UBE) Commission.
On recurrent expenditures, Obasanjo said that "payroll and overheads amount to N636bn or 39 per cent of the budget. The continued large size of the recurrent budget is due to several factors: recruitment of 40,000 additional police with attendant salaries and allowances, monies for capacity building of the civil society as part of the public service reforms as well as anticipated redundancy payments, some arrears of professional allowances to teachers, doctors, researchers and others were not paid in the past.
"Pensions have experienced huge growth from N70bn in Budget 2004 to N119bn this year -- a 70 per cent increase because of the weight of the new contributory pensions and mandatory life insurance with federal government's contribution of N44bn," he said.
He also disclosed that "a total of N360bn for domestic and foreign debt service has been provided in the budget compared to N369bn in Budget 2004. N190bn is for domestic debt service while N170bn goes for the service of our external debts. Total domestic debts stand at N1.329 trillion, most of it in short term treasury bills. Tighter fiscal management is ensuring that we do not add to these costly short-term obligations".
Noting that "Nigeria's external debt presently stands at $34bn up from $32.9bn last December," Obasanjo said "the $1.1bn increase in debt stock is partly due to adverse exchange rate movements of the dollar vis-a-vis European currencies in which a large part of our debt is held and partly due to arrears accumulation. We have budgeted again $1bn for payments to the Paris Club."
On the use of the additional income that accrued from the excess crude, Obasanjo revealed that "a total of N609bn ($4.6) is projected as savings on the excess crude for the Federation Account by the end of this year. The Federal Government's share of this savings is estimated at N316bn.
"Based on a discussion with stakeholders of the different tiers of government, it has been decided to permanently save 50 per cent of this additional income, whilst putting 50 per cent towards financing additional expenditures in the 2005 budget.
"The 50 per cent savings is designed to cushion the volatility of our revenues and expenditures based on the uncertain commodity price of oil. In the past when oil price was high we spent every kobo earned, and when it fell to a low level our budget crashed, sometimes to a point where salaries could not even be paid.
"With these savings, there will be a guarantee that we can still carry out a minimum level of expenditure should oil prices fall to low levels. With regard to the 50 per cent for additional expenditures, the emphasis has been on channeling a significant part of the resources to physical and social infrastructure and security with power and roads getting among the biggest additional budgets as follows: Agriculture (N5bn), Power (N18bn), Works (N29), Defence (N20bn), Police (N7bn), Internal Affairs (N9bn) and N40bn to three development banks of agriculture, industry and housing. We will source more funds for these banks from within and externally.
"The additional spending for priority sectors add up to 57 per cent of the spendable excess crude savings, and reflects the priorities of most Nigerians who want to see improvements in basic infrastructure. In developing infrastructure, strong efforts will be made to coordinate with the states and local governments such that a road project, for instance, could include both federal, state and rural roads to produce maximum impact and results in a given location," he added.
Obasanjo also said that "N5bn has been set aside to cushion the impact of reforms" while "the balance of N62bn is targeted to important expenditures in other sectors of the budget," adding that, "this prudent budget practice will be embedded in a law increasing budget transparency, encouraging fiscal prudence, and accountability in all tiers of government, known as the fiscal responsibility bill."
The total capital budget, the president said, amounts to N544bn, a 55 per cent increase over last year's budget of N350bn, noting that "a significant portion of this -N50bn- is directed at paying local contractors debts. It also provides equity of $80m for the NPDC - one of NNPC's subsidiaries to take off.
"The capital budget focuses on the stated priorities of physical and human infrastructure with 33 per cent of the budget designed for roads, water supply, power, education, health, and agriculture.
"Regarding the overall budget, pension payments account for the largest share of the budget at 11.6 per cent; education, 8.3 per cent; defence 8.6 per cent; police, 7.2 per cent; works, 7.6 per cent; power, 7.2 per cent; health, 5.5 per cent; and agriculture 1.7 per cent," he stated.
On tariff policy, Obasanjo admitted that "our tariff policy has been one of those areas where we have made the least progress under the reform programme. As such, important distortions have remained, creating sometimes an unlevel playing field, many interpretations of policy and uncertainty of businesses.
"With this budget, I intend to lay out clear directions for policy which would begin to take effect by mid 2005. With this policy, the need for waivers, exemptions and the like will disappear as such requests will no longer be honoured starting June 2005. They would not be necessary since everyone would be facing the same low tariff regime," he added.
In his opening remarks, the Wabara had told Obasanjo that a hundred per cent implementation of the 2005 Budget "is possible".
"On our part, I want to assure Mr. President and the entire nation that we shall treat this appropriation bill with 100 per cent attention, and with despatch. But we shall not sacrifice sensitivity and thoroughness on the altar of speed. We shall strike the necessary balance in the overall interest of our dear country," Wabara said.
However, this year's presentation did not witness the incessant ovations that greeted the Budget 2004 presentation. Indications that the lawmakers would be modest with their applause emerged when in his introductory remarks, Obasanjo appraised the implementation of this year's budget as successful. The left flank of the floor to the gallery where Senators sat moved to clap their hands but no sooner was it started than House members shouted No! No! No! thus bringing the emerging clapping session to an end.
Also, House members on two occasions let out loud murmuring to express disagreements with the president's speech. When Obasanjo listed the roads that had been rehabilitated by Federal Road Maintenance Agency (FERMA) across the country, the lawmakers let out their protest.
Also, when Wabara, in his closing remarks, assured that the National Assembly would pass the budget before proceeding for Christmas recess, the House members also murmured.
On Monday night the Peoples Democratic Party (PDP) lawmakers also did not agree with the President on the actual implementation of the 2004 Budget.
Whereas the President said that over 65 percent of the 2004 budget has so far been implemented, the PDP lawmakers argued that the actual level of implementation so far falls below 40 percent.
The disagreement took place when the President briefed members of the party's National Assembly caucus at a meeting where House Speaker Aminu Bello Masari and his Deputy, Hon. Austin Opara were absent.
THISDAY gathered that the meeting, which took place at the Yar' Adua Conference Centre, Abuja was for members of the party to be briefed on the 2005 budget estimates, before the actual presentation yesterday.
According to members of the House, who spoke to THISDAY on condition of anonymity, the outcome of the oversight tours showed that that the actual level of implementation of the 2004 budget was well below 40 percent.
The members also claimed that majority of the constituency projects duly appropriated for in the 2004 budget were only executed to the tune of 20 percent, while other projects were also poorly executed.
The lawmakers contended that if past budgets including the 2004 budget had been faithfully implemented the economy would have been on its way out of the woods.
National Chairman of PDP, Chief Audu Ogbeh, however, assured the National Assembly members that the President will abide by the spirit and letters of the 2005 Budget as passed by the lawmakers.
"We felt that at the same time, the party and the party in the legislature and both the executive arm need to meet to look at the highlights of the budget for members of the National Assembly to ask a few questions so that all of us as a party would resolve on the main trust of the arguments and the philosophy behind this year's budget.
"We thought that, this is necessary because in the last analysis, many members had asked us in the past, what is the party's position on the budget. We have not always been able to say, this is the party's position. That is the reason why we are meeting tonight," Ogbeh said.
The PDP chairman also appealed to the lawmakers to ensure that the 2005 budget is passed into law on time "so that the programmes and policies of this administration can continue to be implemented."
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