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“The downside of
economic illiteracy”. “A rank lesson in how (and why) not to count
one’s chickens before the eggs hatch”. Whatever the choice of
explanations, the debacle at the Federal Accounts Allocation Committee
(FAAC) last week, over distributable funds for the first quarter of
this year was untidy. State governments having earlier rejected the
offer by the federal government to share N362.492 billion as their
allocation for the period, the federal government had to raid the
excess crude account in search of the extra N339.627 billion, which
sub-national accounting units felt was due them on account of the
mathematics of the appropriations for fiscal 2010.

Until the delayed
approval of the 2010 budget, the committee had divvied its pot based on
the assumptions of the 2009 appropriations. With the approval of the
budget for this year, and the new US$67/barrel benchmark price for
crude oil sales, state governments were no longer going to accept
allocations from the FAAC calculated on the lower benchmark (US$45pb)
used for the 2009 budget.

Thus, the
N339.627bn augmentation fund – which was taken out of the nation’s
savings – represented the oil price benchmark differential between
US$45pb, which had been used from January to March this year before the
budget came into implementation in April. However, with oil prices
trending southwards, it is difficult to see how the committee can
continue to meet this new level of financing. Sadly, the excess crude
account is so depleted that it cannot also continue to serve as a
source of augmentation support. Indeed, we should note that this was
not the reason why this fund was set up. Quite clearly, we confront a
very serious problem. Yet, the benefits from all this excitement lie
elsewhere. The cop-outs by which the problem was temporarily resolved
may yet teach us useful lessons.

The first such
lesson is without doubt, the need for us to save as a people. The main
deliverable here is to ensure that the budget is in surplus (public
saving), or that any deficit arises primarily because government hopes
to grow national income going forward. After which, we must create
conditions for all domestic prices, but especially for the price of
most public infrastructure, to move as close to the market-clearing
rate as is feasible, thus ensuring that price distortions no longer
encourage levels of private consumption inconsistent with the need for
private savings. If the Obasanjo administration had not done this, we
wouldn’t have had available to us the balance on the excess crude
account, which we have apparently used up so much that only US$4.6bn of
it remains, from a much healthier US$62bn in September 2008.

Nonetheless, public
sector savings in Nigeria acquire an additional use. The full extent of
the national need for investment in key sectors of the economy, require
that we start to discuss public sector financing in ways that ensure
that it helps the private sector to grow, acknowledges the capacity of
the economy to absorb additional infusions of cash, and recognises the
inter-generational responsibility that arises on account of the nature
of the country’s main source of such spending – a wasting asset that
however well we use it will because of present consumption be denied to
future generations.

On this score planning then ceases to be an act in wish fulfilment
as has been suggested by the penchant of the national assembly to lard
on more gravy on to the appropriation details every year. The US$67 per
barrel estimate on which the current year’s budget is based was always
suspicious. Although signs of a recovery in the world economy were all
over the place, a number of worries were still there. Unusual
government spending is still the main growth driver in most economies
that have showed signs of recovery.

In addition, problems with the
sovereign debt crisis in Europe ought to have alerted our planners to
the unintended consequences of the many fiscal stimulus packages that
governments across the world have in place. Besides questions of the
sustainability of the recovery, it also mattered that it has remained
uneven across regions. All of this still counsel caution in the
national planning and budgeting effort.