2024 budget: We want private sector to have confidence in us – Bagudu

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Minister of Budget and National Planning, Abubakar Atiku Bagudu, spoke with journalists on the sidelines of KPMG/Arise Budget Day in Lagos penultimate week where he outlined the economic principles underpinning the 2024 budget; the philosophical context in arriving at key decisions; liberalisation of the foreign exchange market; and government’s vision in charting a new direction for the national economy especially the anticipated role of the private sector in providing much-needed infrastructure. Ayo Olesin looks at the highlights of the discussions.

As usual, this year’s budget, despite the record numbers of almost N29 trillion announced and about 40 percent dedicated to capital spending, has been met with scepticism given the grim challenges facing the national economy which is being felt on the breakfast table in homes of both the poor and the rich.

Most of the scepticism stems from a long history of unmet expectations typified by low budgetary performance; huge shortfall in actual releases; higher than anticipated deficits; colossal inefficiency in government procurement processes resulting in wastages such that the federal budget valued for its mere ritualistic purposes.
However, the 2024 budget, the first crafted by the Bola Tinubu administration seems to be attempting to chart a new course, hinged on its Agenda 2050, a long-term consensus-driven arrangement geared towards harnessing the much-touted huge potential inherent in the nation’s economy to deliver that shared prosperity that has proven elusive.

It gives some comfort that the current minister of Budget and Economic Planning, Atiku Bagudu, himself an economist, has a clear understanding of which direction we ought to go if we are to dig ourselves out of the hole of crippling debt, huge infrastructure deficit and less than optimal GDP growth.
Bagudu admits that Nigeria’s GDP should be growing much faster than population with about $100bn in infrastructure investments needed yearly but most of these investments need to come from the private sector since government in fact cannot raise such funds.

To gain the confidence of the private sector, President Tinubu, had to remove the fuel subsidy while the Central Bank of Nigeria (CBN) also floated the exchange rate. “The message is clear – it is not going to be a discriminatory macroeconomic space; the public sector does not have money to spend.”
For him, despite the pains, there are indications that these are the right steps to take. “Rating agencies are passing a vote of confidence on the outlook for Nigeria; the International Monetary Fund (IMF) said that inflation will come down. We have seen the bond market reflecting how investors think about our country. We are improving.”

Bagudu also points out that N28.77 trillion 2024 budget that has been passed into law contains a lower deficit than the 2023 budget “because we want to send the right signal.”
More significantly is the proportion of capital spending which at 39 per cent is the highest in eons. “When we talk about capital expenditure, most people do not add the capital component of the statutory transfers, which are transfers that go to the Niger Delta Development Commission, North East Development Commission and several other agencies. When you disaggregate the number and add it, you will see that the capital is close to N11 trillion”, Bagudu explains.
The minister points out as well that spending also across all the priority areas – defence and national security, agriculture and food security, infrastructure, roads, housing, creative economy, innovation, digital, science and technology, have been increased to underscore the importance of innovation in enabling Nigeria to achieve a near double-digit growth.

The new thinking in government is also highlighted by the system of special funds created to drive consumer spending by de-risking certain key credit lines that form the backbone of developed economies. Specifically. N100 bullion was set aside for consumer credits to boost credit culture wherein people don’t have to pay 100 per cent for items such as cars and even household items, which Bagudu notes suppresses potential demand.
“To achieve credit-driven growth, we recognised that we need to support manufacturing activity with a pool of capital, which can de-risk consumer credit,” he says, lending credence to a gap in the economic space that banks and certain retailers had tried to bridge in the past but have since baulked due to high risks involved.
Government is also looking at the mortgage space with a N65 billion fund provided for mortgage de-risking. Bagudu admits that “this is too small in the context of our mortgage need, but the idea is to send a signal to mortgage providers that we mean business. We will de-risk mortgage lending so that it is more profitable so that the private capital and private mortgage providers who can help us support the millions of homes that are needed will come into the market and boost economic activity.”
Expatiating further, the minister points out that the budget provides N100 billion for agricultural funds. “This, like the mortgage fund, is to de-risk so that companies that will not otherwise come will see that the government is putting its money where its mouth is. There is also N100 billion to support school feeding and better nutrition for kids. We have also provided N550 billion in anticipation of a negotiated wage increase with the labour union. So, money has been provided to meet commitments that we anticipate as well as providing more capital in the priority areas while meeting our obligations.”

Questioned about the problematic borrowing behaviour of the previous government where the Central Bank of Nigeria printed about N22 trillion to fund government spending through the new notorious Ways and Means window, Bagudu says the President has committed to obeying the law and that government would no longer borrow unlawfully.
Stressing that the current Ways and Means borrowing had left government with a debt service bill of N2 trillion after securitisation at about nine percent interest rate, he assures that if government must borrow at all from the CBN, it will be within what the law allows.
“The law allows and anticipates that every government around the world may need to go to the CBN to say we are expecting money but we currently don’t have money to meet current obligations. Could you give us five per cent of the money we are expecting to meet liquidity challenges? That is not an unusual request. That is why the law allows five per cent of the previous year’s revenue. What we have been doing wrong was going beyond the five per cent limit. Now, there is clarity.
“Where we are to borrow, we will issue bonds. It is an option; people can invest. It even provides an opportunity for some private investors who have money to buy government bonds. Some are looking for the opportunity.

The minister also addressed concerns about the huge debt servicing bill, currently estimated at 90 percent of revenues saying certain things just have to be done even if the money is not there.
“Unfortunately, in our national life, some things cannot wait. We have many children. We want them to have an education. We have a security challenge. We need more boots on the ground. So as much as you would want to cut back on borrowing, there is an irreducible minimum that you need to do. So, it is a choice”, he explains.
“During Gen. Yakubu Gowon’s era, he made the famous statement that money was not Nigeria’s problem. We became a more populous country thereafter. Demand for everything – infrastructure and security – started growing. So, we need an irreducible minimum of spending, and we don’t have the money to meet that minimum.
“Revenue is also a problem. Some countries collect 50 percent of their GDP. Most European countries are over 30 percent; France is about 50 percent. Italy, I think, is around 38 percent. Nigeria used to be the second lowest in the world. Think of it – you don’t have revenue and you have irreducible commitments. You are in trouble somehow. But we recognise this and that is why in the 2024 budget, despite the need for spending, we want to make the private sector have confidence in us.”

Bagudu also explained the rationale for adopting the N800/USD benchmark for the budget as against the N750 per dollar proposed in the initial budget saying that the executive decided to defer to the national assembly in the spirit of democracy.
“We chose democracy, and democracy has an opportunity cost. We have seen budget shutdowns in advanced democracies, particularly the U.S. because power is split and given to different institutions. The person who has the last say in appropriation under our laws is the legislator because it is the National Assembly that passes the final document.
“The executives can provide their proposals, just like the President graciously did on November 29. However, the wisdom of the National Assembly was that the support exchange rate was much higher than the proposal we submitted. And they felt it should go up just even our revenue expectation from government enterprises. We have a very committed democrat in the President who, despite his opinion, knows that in a democracy we must respect institutions. Not surprisingly, we accepted what the National Assembly said, while calling on them to join us in tasking everyone through oversight, interrogation, and others to ensure that we achieve those thresholds we set for ourselves.”

The present government against seems to understand the importance of consensus and as Bagudu dwelled on extensively, the idea is for all government ministries to implement the national consensus on where Nigeria wants to be decades down the line. Already, it is estimated that about $100 billion in new infrastructure investments is required each year to drive adequate growth and only about 16 per cent of it can come from the public sector.
This he says informed the creation of the coordinating mechanism for the economy under the Minister of Finance and Coordinating Minister of the Economy, Olawale Edun so that members of the cabinet and other key officials can learn from past experience both in Nigeria and from elsewhere where the private sector has driven growth.
“If you go to many countries, the health sector is largely the private sector. Even in Nigeria, we have some first-class hospitals. Maybe in the 70s, we thought hospitals could only be built by the government. We are seeing airports owned by companies. We are seeing roads being concessioned. If we recall, when the President was a Lagos governor, we saw how the private sector could drive development even in areas like waste management.
“We understand that there is a lot the private sector can do. There is much money out there in the private space, which we must leverage. The role of public officers is even to lead so that private capital can come and the President has been doing this. He visited India, the UAE, Germany and a couple of other countries for this purpose. He continues to emphasise the need to interact with investors, meet and hear their expectations.”

To underscore this point and the possibilities lurking around the corner, Bagudu points out that a coastal railway of over 780 kilometres from Lagos to Calabar is going to be undertaken by the private sector.
“We have seen Siemens investing more and expanding; it is supporting us more to expand our power sector. We have seen gas deals sealed. Every day we are seeing deals in different sectors”, he says.

One sore point that the minister tried to address as well as the liberalisation of the foreign exchange market which has seen a massive devaluation of the naira in both the official and parallel markets, something that the minister insists that Nigeria must confront we have put ourselves in an impossible position.
He insists that Tinubu signed two executive orders, removing fuel subsidy and liberalising the forex market “because we had been deceiving ourselves.”
“We had run a system where we did not have foreign exchange anymore, so even if you desire to ensure repatriation, you don’t have to because you have boxed yourself into a corner. And that’s why the President said ‘let us allow the central bank to liberalise the market; let it be a rule-based market.’
“If somebody makes legislation today that says every bag of yam must cost N100, the people who hold them will just take them quickly back to the stores and lock them up. So, the steps taken by the President and the Central Bank might be inconvenient now in terms of the fluctuation. But I believe it will stabilise and get better. Countries that have chosen the route have done better on average in the long run.”

Beyond the realisation of past errors and taking apparent steps to remedy the situation, the real test for the Tinubu administration will come when it’s time to evaluate performance compared with stated objectives since successive governments have proven adept at saying one thing and doing the exact opposite.