The Federal Government may present a supplementary budget to the National Assembly due to a further depreciation of the naira and galloping inflation that have made the 2023 budget nearly unrealistic.
The 2023 budget benchmarks the foreign exchange at
N435/dollar and inflation at 17.10 per cent but the severe scarcity of dollars
means that the local currency may head for N500/$ in the NAFEX market and up to
N1000/$ in the parallel market in 2023.
Dollar closed N895 on both Lagos and Abuja parallel markets,
spiking fears that the doomsday prediction of N1000/$ by December may come to
fruition.
Similarly, floods and global crisis due to Russia-Ukraine
war could further worsen inflation and poverty in the country, making the
projections untenable.
Meanwhile, the National Assembly is billed to go ahead with
consideration and passage of the budget as proposed in the Appropriation Bill
laid before it by the President, Major General Muhammadu Buhari (retd.), despite
the major difference in the exchange rates.
The federal legislature may advise the executive to forward
a supplementary budget to reflect the recent sharp fall in the value of naira
against United States dollar, it was reliably learnt on Thursday.
At the House of Representatives, top officials who are
working on the money bill told our correspondent that the lawmakers might not
tinker with the parameters of the budget, which, according to them, were based
on the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper
passed by the parliament.
In the MTEF/FSP, the National Assembly had, among other
parameters, approved an exchange rate of N437.57 to a dollar and an oil
benchmark of $73 per barrel.
However, in the Appropriation Bill laid by the President
before a joint session of the National Assembly on October 7, 2022, the Federal
Government proposed an oil benchmark of $70 per barrel and an exchange rate of
N435.57 to a dollar.
On Thursday, Deputy Chairman of the House Committee on
Appropriations, Iduma Igariwey, was asked if the National Assembly would amend
the parameters, especially the proposed exchange rate to reflect the current
realities regarding the naira.
Igariwey, who responded after he called for some time to
consult with the committee’s Chairman, Aliyu Betara, noted that the lawmakers
might not make drastic changes to the budget.
He said, “The National Assembly, as a constitutional
creation, can only act within the ambits of the Constitution. By virtue of
Section 81 of the 1999 Constitution, it is the Executive arm that initiates the
budget-making process and this the Executive arm does, through the President,
present the estimates/ proposals to the National Assembly.
“However, bear in mind that the budget is preceded by the
Medium Term Expenditure Framework and Fiscal Strategy Paper. What it means is
that the budget process is informed by an economic plan.
“Now, in considering the budget estimates presented by Mr
President, the National Assembly is expected to make only marginal input. Such
input has even been controversial in the past, when the good and well
considered input of the parliament has been disparaged as ‘budget padding.’
“To deal with your question more specifically, the National
Assembly is not likely going to make any substantial makeover of the 2023
budget as a result of the travails of national currency.
Supplementary budget
“However, the executive is constitutionally empowered to
articulate and present to the National Assembly, a supplementary budget, and
this 9th Assembly has always favourably considered such request, as happened in
the 2022 budget year.”
Another member of the House, who also has an oversight
function over the budget, said the lawmakers would not work based on media
reports or unofficial exchange rates.
Speaking to our correspondent on the condition of anonymity,
the lawmaker said, “We are bound to consider and act on the available facts and
figures officially before us. Yes, there might have been drastic changes in the
money market. Don’t forget that the MTEF/FSP determines the factors you’re
talking about in the budget. When we get to the bridge, we will cross it.”
Chairman of the House Committee on Media and Public Affairs,
Benjamin Kalu, in his reply to our correspondent’s message after several calls,
said he was out of the country. “I am in the United States in a class room,”
his terse response read.
Chairman of the House Committee on Finance, James Faleke,
did not pick several calls made to his line. He had yet to reply a text message
sent to him as of press time on Thursday.
The PUNCH had reported that the Economic and Financial
Crimes Commission had launched an operation against the bureaux de change
operators, which began on Tuesday, following the announcement by the Central
Bank of Nigeria that it would redesign some naira notes.
It was gathered the operation was targeted at tracking
illicit funds from terrorists, bandits and politicians who might want to
convert their stash in a desperate move to beat the redesign of the naira
announced by the Central Bank of Nigeria.
The new naira notes, which would replace higher
denominations, will be released on December 15.
The naira closed at N895 on Thursday, from N857 on Tuesday.
The EFCC, on Wednesday, arrested no fewer than 87 forex
dealers in the Federal Capital Territory, Abuja, Lagos and Kano. Detectives of
the agency reportedly stormed several forex trading hubs in Abuja, ransacking
their vaults for stash of dollars and naira.
The operatives later arrested no fewer than 25 legal and
illegal forex dealers, in addition to
the 40 arrested earlier on Tuesday during a raid of the Zone 4 Wuse offices of
the Association of Bureau de Change Operators, bringing the number of arrests
in the Federal Capital Territory to 65.
The PUNCH reported on Thursday that the EFCC would extend
the operation to Lagos, Anambra, Oyo and Rivers states.
Spokesman of the Budget Office of the Federation, Mr Afolabi
Olajuwon, told one of our correspondents that he was not aware of any plan to
present a supplementary budget to the National Assembly.
‘2023 budget unrealistic’
Meanwhile, the Nigerian Association of Chambers of Commerce,
Industry, Mines, and Agriculture said the association was concerned with the
parameters of assumptions in the 2023 budget estimations, most especially the
dollar to naira conversion rate.
Addressing a press conference in Lagos on Thursday, NACCIMA
president, John Udeagbala, said these assumptions did not accurately reflect
the true economic conditions of the business environment in Nigeria, especially
the dollar exchange rate of 435.57 naira per dollar.
Udeagbala said, “Most businesses in the country thrive on
parallel FX market rates currently fluctuating between N730 and N760 to a
dollar and considering the fact that there are no guarantees of stability in
the exchange rate of the Naira to the Dollar, as the Nigerian currency
continues to depreciate with no measurable checks in sight by the monetary
authorities on the spiral fall in value, we are deeply concerned and worried
that most manufacturers will continue to purchase dollars at the parallel
market in the coming year.
“It is therefore evident that the 2023 budget is not a true
reflection of the economic reality of today’s Nigeria. Therefore, the N435.57
exchange rate of Naira to the Dollar used as parameter for estimating the 2023
budget is not a true reflection of condition of our nation’s economy.”
Also speaking, a professor of economics at the Olabisi
Onabanjo University, Sheriffdeen Tella, said lack of accountability on the part
of Nigeria’s policy makers and economic managers had worsened the local
currency.
He said “Dollar will get to N1000. The managers of the
economy are supposed to be sacked. They have never been careful when approving
budgets. There are a lot of duplications in the budget. What they ought to do
is to return it (budget) to them and say, ‘In view of what is going on, we
should be more realistic.’ That would send a message to them that the economy
is not properly run.
He said the government would have to borrow to fund the
supplementary budget, noting that the Federal Government could resort to ways
and means again to fund the budget.
“They will go back to the Central Bank because no one is
ready to lend them money from outside the country. They have lost control. The exchequer
(chancellor) in the UK did not do this much before he was sacked. The prime
minister followed. But here is a country where no one takes responsibility,” he
said.
Professor and Head, Department of Economics, University of
Ibadan, Adeola Adenikinju, said, “I think it is still too early. Every budget
has a provision that allows it to approach the National Assembly for a
supplementary if the parameters that informed its formation change
significantly.
“I think where we are now, a lot of things are still very
volatile in the short term. So, I think this is not the time to postulate. The
budget is still going through the process of appropriation at the National
Assembly. I am sure that they might tamper with one or two things there if they
think some of the parameters will vary significantly.
“In terms of
inflation, I am sure you are aware the CBN has been doing a lot to battle
inflation. We need to hold on more to see what the long-term trend would be.
The forecast is that it will come down in the medium to long term.
“The exchange rate that is used in the budget is the official
exchange rate, which is not reflecting the volatility in the market, so that
will not affect the budget and how the budget expenditure is computed. So that
will not necessarily impact that.
“The GDP growth that was assumed is still relatively okay. I
think those parameters are still okay for now, but as we go into the year, if
there are significant long-term changes, I am sure the current or next
executive will approach the national assembly for supplementary.
“Anyway, I am sure that by the time a new government comes
in they may find that have to submit a supplementary budget to the National
Assembly to be able to reflect their own priorities and to reflect the existing
economic reality they meet.”
Budget and inflation
The Director of Research and Strategy, Chapel Hill Denham,
Mr Tajudeen Ibrahim, told The PUNCH that the budget estimate was an unrealistic
venture considering many factors.
“If we talk about inflation, the reality is that the
previous estimate suggests that government will not be able to meet the budget,
especially on capital expenditure, considering that the prices of goods and services generally
have moved upward.”
Ibrahim noted that the move to adjust the budget was in line
with economic reality, citing its possible effect on the country’s finances.
“The only downside in my view is that we are only raising
the expenditure leg, but we have not really addressed the revenue leg because
this most likely will imply higher deficit.”
The Founder and Chief Executive Officer of the Centre for
the Promotion of Private Enterprise, Dr Muda Yusuf, said: “We have the
parameter on inflation but the way the prices of things are going will affect
it.
“Then, we have the parameter of exchange rate which is most
unrealistic at N435/$ because I am not sure all the agencies of government can
get exchange rate at that price.
“Even for most of these contracts, there is always a foreign
component. So, the exchange rate is very unrealistic.
“Then oil production at 1.69 is not realistic regardless of
the progress made with curbing oil theft, whether we can immediately reach 1.69
is up for doubt.
“So, some of these parameters need to be reviewed.”
Speaking on the deficit problem, Yusuf urged the government
to cut down its expenses or else it could further deepen the deficit and result
in a vicious cycle of crisis.
“It is either we cut
down on the budget itself because our
economy is already over stretched as far as our finances are concerned. Raising
the supplementary budget will increase the deficit. Already, it is over N10tn,
so without a corresponding increasing revenues, the deficits will go up.
“That means our debt borrowing too will increase. And the
borrowing component of the budget is very high at about N8.8tn. That is already extremely high. So, all those
things have a way of heating up the economy.”
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