This Budget Is Not About Grammar, This Is An Action Budget – Okonjo-Iweala

Following the presentation of the 2012 Appropriation Bill by President Goodluck Jonathan to the National Assembly on Tuesday last week, the Coordinating Minister and Minister of Finance, Dr. Ngozi Okonjo-Iweala briefed the press to give further insight into the highlights of the budget and how the Federal Government intends to ensure its successful implementation. Captured below is the detailed interaction between the minister and journalists.

Introduction

This is an action budget.  Many of the activities captured in the budget have already begun. We have begun the restructuring, for instance and reforms in the ports, as well as the agriculture programme. This budget is not about grammar.

Of course there will always be challenges in the way of implementation of budgets but we are tackling these problems one by one and I think that 2012 will point us in a new direction because of the achievements and the pace at which we implement.  I think the budget is a clear direction of where the economy is going and we hope to keep up the high growth rate and do more than that.

We want this growth to be an inclusive one that really creates jobs for our young people in this economy. This is the focus that Mr. President wants us to take.

There is also something else I will like to talk about, we are now looking not just at a one-year budget but looking at the medium term. When we prepared the medium term expenditure framework and took it to the National Assembly, we looked at what we will do as a trend.

So for instance, when we look at recurrent expenditure, in the way we have restructured this budget, people say they’ve just move from 74 to 72 (percentage of capital budget  thereby increasing capital from 26 to 28 per cent).

Well over the medium term that is until 2015, we are going to be moving this recurrent expenditure in changing the structure of the budget steadily down. So it is not just looking at this one year.  We are expecting a trend and I think that is what should be monitored.

In the same vein, we have started increasing the capital budget to 28 per cent this year but we expect that it will be about a third in 2015. We are really reversing the declining trend of capital and increasing trend of recurrent expenditure and taking them back for more reasonable figures.

If you have a current spending back down to about 2/3 then we would have achieved something and we can continue restructuring the budget from there. The specifics of how we will do it is what the people want to know. We have already started to find out that from biometrics in some of our agencies.

We have been able to weed out ghost pensioners and ghost workers and bringing down the pension bill and the amount we are spending in some of these agencies and we are going to continue that exercise, I think it will yield good results.

The second thing we are going to do is actually restructuring agencies with overlapping functions.The president set up a task force to review our parastatals, these are agencies that have overlapping and duplicative functions. By restructuring these agencies to avoid duplication, we will be able to cut down on recurrent expenditures.

We will also be looking into many commissions and committees we have, to see whether their mandate still obtains years after they might have delivered whatever functions they were supposed to deliver – is it still valid to keep them alive? So we are talking of restructuring of some parts of government to yield the results that we projected into the medium term.

$70 OIL BENCHMARK

Besides that, let me also mention one or two other points. The global environment we are working in, we continuously have to monitor and keep on top of this, to make sure that we adjust the management of our microeconomics especially as events develop outside.

We have to be flexible and nimble so that we land on our feet. If projection continues for a downward turn in the global economy and this affects the aggregate demand for our primary product – oil – we have to be sure we are nimble enough to cope with that.

We also have to work very hard at diversifying the base of our economy by implementing the programmes we have set out for areas of priority like agriculture because that is going to yield results.  It is going to cut down on food import as well as the promotion of export.

And that will help us to be less volatile as an economy. Another point I need to make is that we have put in place some of the institutions and mechanisms that will help us implement the budget.  The whole cabinet is involved in implementing this budget and this economic agenda.

Then within that we have the Economic Management Team which includes the private sector and an implementation team of about 15 people that will be focused on pushing forward the agenda that have been laid out in this budget and in the medium term. We have that and the growth that we are experiencing in the economy will continue and improve.

Budget 2011

In terms of Budget 2011, there were questions on the implementation of that budget and I think I didn’t cover up to several of the circumstances which included the late passage of the 2011 Amendment Bill which happened in May 2011. There was shortage of time for implementation. I think the implementation of this budget within this short time is a reasonable thing. Of the N1.14 trillion capital budget for 2011, we released just over N830 billion.

There are four pillars we are going to be focusing on. The macroeconomic stability and you have got all the pointers and benchmarks but then I want to highlight two things.  It is not only that we are looking at the expenditure side of the budget and looking at a manageable fiscal deficit of 2.77 per cent of GDP but we are also looking at the revenue side and taking measures to improve internally generated revenue collection, corporate tax collection and plug revenue leakages.

We will be auditing parastatals that generate revenue one-by-one.  There are already letters to this effect with the support of Mr. President, working with them to see how we can recuperate more resources for the budget. On our corporate tax collection, we have about N170 billion outstanding and we are negotiating.

Let me also go from there and talk very quickly about the real sectors of the economy where we place great emphasis on agriculture which is very central in this transformation agenda.  We have taken several measures in order to support the sector.

Has oil subsidy been removed?

What I can tell you on that issue is that the president is consulting widely.  He is talking to stakeholders all over the country and at the appropriate time, he will make the decision.

Could you be categorical on the removal of fuel subsidy?

I thought that is categorical enough.  (General laughter)

There was allocation to the Solid Minerals sector. Was it deliberate or an omission?  When will the implementation of the 2011 end?  What happens to the unspent funds?  Are you asking the MDAs to return such funds? What is the deadline?

(Minister of State for Finance, Alh Yerima Ngama answers the question on solid minerals)

The question being asked on solid minerals is really intriguing because we thought that the journalists are already in tune with the transformation agenda so that they can actually communicate.  We have already said that we will only provide the basic infrastructure.

The rest is for the private sector. The only thing to do is to put the right policy in place just like Aviation sector. I think you have heard the Minister saying that very soon, she will stop coming to the Federal Account for allocation because she will just put the right policies in place for the private sector to provide all the infrastructure that will run that industry.

So Solid Minerals sector is an area we want to open to the public and actually a lot has been done.  We have already got the policy right so what we have left is to finish all unfinished roads. Of course if you have bad roads leading to the mines, it means government has not made its own contribution.

We are providing infrastructure for our miners. Look at the Abuja-Lokoja Road, when it was designed, nobody knew there would be Obajana (Cement Factory) so now that road is receiving attention. All you need is for you to get all the mining companies to come to Nigeria and in fact, they are coming.

There was a question on when the 2011 budget implementation will end. The Financial Year ends on December 31, 2011. We are preparing to close the financial year and resources not used by the end of the financial year will be returned.  This is best practice internationally and we are going to do that.

How do we intend to finance the budget deficit?  We have got a series of sources. We have talked a lot about domestic borrowing and making sure that our domestic debt is sustainable because we do not want to rack up debt that we cannot pay.

One of the points in the budget speech is trying to maintain our domestic debt/GDP ratio of about 16.4 per cent. So we will do some borrowing but we want this to come down. Last year, we borrowed N862 billion. We want that to come down just as we want recurrent to be on a downward trend.

We want domestic borrowing to come down so we will be borrowing about N 794 billion this year and will keep bringing it down.  We also have privatisation proceeds that we are looking at. We are expecting some resources from signature bonus and these are the usual ways of financing budget deficit.

Reducing Recurrent Expenditure through Biometric data capturing exercise

In terms of the progress on biometrics, I will just give you one example. Due to works done by the task force that is helping us on this issue, from the Head of Service’s Office and the support of the Police Pensions Office, we have been able to bring down the police pension substantially, from about N1.5 billion monthly to about N500 million monthly. This is substantial.

We will continue the process. The president is adamant in terms of getting this through in terms of our pensioners and making sure that we use this as a tool for bringing down recurrent expenditure.

How much will be set aside for fuel subsidy, the central bank governor has warned about expansionary spending against next year, spending is going to be higher next year, so……..?

Minister cuts in –  I will like to challenge you on that, I don’t know what you are talking about expansionary spending, of course the budget this year is slightly higher than next year but in real terms, it’s not. If you do your count, you will find out this is really a tight budget, we are budgeting at a bench mark of  70 dollars, bringing it down from the 75 dollars of last year.

As at this year 2011, this is a very tight budget for us, so I don’t concur, the central bank governor is the happiest person in town now because he sees that this year’s budget will make it easier in terms of monetary policy unless you want us to cut the budget in real term which I don’t know any other country that does that. I think this is really a tight budget. I advise you to speak to the central bank to get their view.

What is your opinion on interest rate?

We will continue with central bank because we want interest rate to come down and that is because we also realised that all these are inter-related that is why we came up with a tight budget.

On subsidy, it touches everyone but you must allow the process to be thorough. The process of consulting is on-going. I can tell you we have been meeting with youth group, labour union, students, church groups all over. He is consulting, when he has consulted fully with members of the country and society and listened to them, it will give him room to make a decision and that is what I have to say on that matter.

How difficult is it to cut recurrent budget, going by the amount of work you have done so far?

The headline I saw in some of our papers is not right. Some body said overhead is N1.something trillion. There are certain categories of recurrent expenditure, one is personnel. What takes up our budget in this country is human being, personnel cost, people working in the public service.

So when you are talking of the recurrent budget, this is a large part of the budget. I just want us to be very clear because  you are asking how difficult is it. When I arrived this year, we found that salary has been increased by 63 per cent in the civil service, this year 2011.

Our finding is that the salary portion of the recurrent budget is by far and away largest part of it which is now in this budget. The composition of the budget: personnel cost of the MDAs(ministries, departments and agencies) is 35 per cent; that is the largest part in that recurrent portion, the overhead portion is 5 per cent for MDAs alone, you know there is also overhead for the Judiciary, National Assembly etc., but for MDAs, it is 5 per cent.

We got other things within the recurrent expenditure. It is not that easy to cut personnel cost because we are talking of people’s salaries. If you want to give us support …we know what you are talking about, we will find ways and means, but at the moment, what we are about to do is to cut duplication, waste, etc. Isn’t that a good place to start?

And by trying to see where there are leakages, we are using biometric to weed out ghost pensioners that already, without doing any thing to anybody brings down the bill, I think we should do that exercise first before thinking of any other drastic type of actions and we also drastically look on how to streamline agencies so that we are not duplicating works.

I believe when we finish those two exercises, you will have a better idea of the type of government we are and from that, we can move on to other measures. When we are looking at the civil service, let us not just bear in mind retrenchment, we have to look at the quality of people we have, the training we give them, how we get the skill for our civil service to be the right kind of civil service – we need to move this country into the next century, so implementing those reforms we talked about, we are looking at the quality issue in the civil service as well.

How did you arrive at the $70 a barrel benchmark?

We started with $75 per barrel and before we moved it down in the framework to $70, we did quite a lot of home work as to what the possible trends are. Forecasting the price of oil is always a hazardous adventure but you do the best you can based on the available knowledge of the experts in the sector.

We did do all of that before we came to a conclusion.  We took into account the external environment and what might be happening to the prices of oil under various scenarios and we think we came to a sensible benchmark price. Oil is now a bit above $100 per barrel now, we think we can sustain this.  This is a reasonable price, almost all the analysts we spoke to said it’s a reasonable price.