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Selling National Assets to Finance Deficit Budget As a Step in the Right Direction

Selling National Assets to Finance Deficit Budget

As a Step in the Right Direction

By Godwin Oghenede FCA, FCCA, Senior Consulting Partner, Godele Consulting Ltd, Lagos. E-mail: [email protected], Tel:08112738742.

In recent times the Senate President Dr. Bukola Saraki and Alhaji Aliko Dankote has called for the sale of National Assets to finance our budget deficit and stimulate economic recovery. This call has also being endorsed by the National Economic Council comprising of the Vice President and the 36 State governors at their recently concluded economic council meeting.

That Nigeria is in recession is no longer a secret. That Nigeria government at all levels have run out of cash and unable to meet their recurrent expenditure including payment of salaries is an open secret. Our Foreign Reserve is down. Our external borrowing now stands at N3.19 trillion as at June 2016 from Debt Management Office (DMO) figures while Domestic borrowing is at an all-time high of N10.61 trillion (DMO) made of 70.46% Government Bond, 27.36% Treasury Bill and 2.18% Treasury Bond.

These high domestic borrowings have significantly reduced lending to the Real Sector. The sector that is the driver of our diversification efforts. The generator of economic activities and creator of real growth. As bad as things are, further pressure will come to play as a result of government plans to refinance well over 30% of domestic debts due within the next 12 months. A refinancing that will imply a higher interest rate for a foreseeable future and a stagnation of private sector economy growth without which unemployment will remain high.

These are the stack realities of our times that calls for a pro-active and effective action plans. Actions plans that requires knowledge and better understanding of the workings of government budget, its financing and the components parts.

How Did We Get Here?

Like individuals or households, government derives its income from various sources and spends such income to finance government activities. Income received are classified as either REVENUE OR CAPITAL Receipts. Revenue Receipts is the total of Tax Receipt + Non-Tax Receipt while Capital Receipts is a combination of Government Borrowings + other receipts like Privatization and Sale of Assets.

Out of these Receipts the government is able to meet all its expenditures which is made up of: RECURRENT-Salaries, Pensions Contributions, Interest on government loans, refuse collections etc and CAPITAL- Expenditure that increases productivity and growth of the economy, Roads, Power, Hospitals, Schools etc.

Where total Revenue Receipts is not enough to meet total expenditure Requirements, we are faced with a deficit budget as is our current situation. The question we must ask is why are we not able to meet our expenditure. The answer to this are many but it includes a fall in global oil prices as our main source of income, low tax collection, revenue leakages, corruption and many more.

Revenue Deficit

We have a Revenue Deficit when total Revenue Receipt is less than Recurrent Expenditure. It is an indication that government Revenue is not sufficient to meet the everyday expenditure of running a government and the provision of essential services. In this instance Government should be more creative to increase its Revenue Receipts from various Tax and Non-Tax Sources, it should step up revenue collection drive and reduce expenditure. Serious steps should be taken to reduce government spending. It should avoid unproductive or unnecessary spending. It should run a lean government. None of which is currently in offering.

Fiscal Deficit

This is a measure of the total budget deficit financed by borrowings in a fiscal year i.e. Total Budget Expenditure Less Total Budget Receipt excluding Borrowings. Fiscal Deficit can be financed in a number of ways. Through borrowings from internal and external sources such as Capital Market, Banks and Issue of Treasury Bills. Borrowings requires payments of Capital and Interest which may result in a debt trap and a burden on future governments and generations. Loss of sovereignty if it involves external borrowings which in turn may affect future growths and development of the country. Borrowings could add to inflation and stagnant growth. It is a warning to government to either cut down its spending or increase its Revenue Base.

Conclusion

Based on the above analysis, it would be wise to follow sound economic reasoning in supporting the call for sale of assets to finance our current budget deficit. Such sale will reduce our Fiscal deficit and avoid its associated dangers. The fund raised can be channel to finance investment in critical sector to jump start the economy and get us quickly out of the recession without creating future liabilities. Time is of essence so as to avoid a forced sale which will reduce the value of such assets being considered for sale should things get worse.  In this regard, I call on the Federal and State government to carry out an urgent Audit valuation of all Assets in their possession from Lands, buildings and investments holdings in readiness for sale or privatization. Such holistic sale will provide a useful source of funds to finance critical investments in infrastructures, free funds allocation to non performing state assets and usher in private sector efficiency in the running and management of such assets. The funds must not be used for sharing, bailout for states, diverted to private pockets or used to meet recurrent expenditure of the state. To do so will be a return to the past and a deep recession with serious social consequences for the nation. Borrowing as suggested by some should be the last option. If we go down the route of borrowing, we will create future liabilities for future generations while we keep funding idle and lost making assets like the refineries, Wari Port, Koko Port, Calabar port, former Federal Secretariat and housing complex in Ikoyi, Lagos just to mention but few

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