Sufuyan Ojeifo
8 December 2008
Abuja — Chairman of the Senate Committee on Appropriation, Senator Iyiola Omisore, has cautioned the Federal Government on options outlined in the 2009 budget for deficit financing.
In his comments on the budget, Omisore said that falling back on the nation's accumulated external reserve to finance any revenue shortfall was acceptable.
According to him, "The purpose of accumulated reserve is to have something to fall back on, when there is shortage of income vis-à-vis what is required to satisfy the nation's real needs. "Falling back on such reserves to finance any revenue shortfall is acceptable, both in theory and in practice."
Omisore also cautioned, in respect to external borrowings for budget support, saying there was need for strong, convincing evidence that the nation needed to go on another round of external borrowings. He stated: "We recall that the nation was recently bailed out of an unsustainable external debt burden. We, therefore, need strong evidence to convince the nation that we need to go back to another round of external borrowings for budget support."
He added: "Finally, external reserves draw down and external borrowings are eligible options for deficit financing.
It is, however, obvious that the total cost of borrowing both (implicit and explicit) far outweighs that of using our own reserves.
"Therefore, whichever way we look at it, an indebted nation is an enslaved nation with her citizenry. Our lessons of experience until about three year ago should serve as a serious guide and warning; otherwise, we will rapidly lose the economic independence derivable from the payment of our huge external debt to various creditor nations and institutions."
He also noted the non-inclusion of Public Private Partnership (PPP) as a veritable source of funding in the provision of eligible public goods and services as a financing item.
He said, "This should be reconsidered seriously. Actually, this is a desirable option to outright loans for the public sector, especially from the external sector."
On the revenue side of the budget, he said that the Appropriation Committee believes that "crude oil benchmark price of $45 per barrel makes little sense, as it is in line with recent developments in the international oil market; $48 per barrel is most appropriate."
On daily oil production target, he stated: "We need to keep the following in view: the actual production averaged 2.024 mbpd in the first half of 2008; the Niger Delta problem is yet to be meaningfully resolved; and OPEC may reduce production quota in order to shore up the oil price. Given the above, the projected production of 2.29 mbpd appears optimistic."
Omisore further added, "We note that the projected non oil revenue for 2009 is 26 percent higher than that of2008. The latter in turn was 14percent higher than that of 2007.
This roughly translates to an average annual 20 percent growth rate in non-oil revenue."This goal is not unattainable. However, there is need to articulate some effective strategies for achieving and/or sustaining this target."The projected exchange rate of N116 to US$1.0 may not be attainable due to major changes in macroeconomic fundamentals. "In particular, we envisage a significant reduction in foreign exchange earnings, with the following potentials implications: reduced foreign exchange available for bidding in the market; and decline in the rate of accumulation, or even depletion in the foreign exchanges reserves."He advised, "Unless we can assure a compensating decrease in the level of imports (of goods and services); it is advisable to retain the 2008 projection of N117 to US$1.0."On the expenditure side of the 2009 budget, Omisore said, "We note that the proposed allocation to Ministries, Departments and Agencies (MDAs) is about 300 billion naira over that of 2008 allocation. "In the face of proposed austerity measures, more clarification is required to justify the increase, which should be subject to proper scrutiny.|He added: "Clarification and additional information is required on the derivation of the estimate with respect to multi year tariff order. "Also required is information on specific strategy for the fraud-proof implementation of the scheme, in light of emerging unpalatable experience with PPRA; further information is required on other service-wide votes, which appear as new expenditure items for 2009 fiscal year."
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