2017 budget: N1.67trn external borrowing projections unrealistic – Expert

The President, Time Economics, Ogho Okiti says the Federal Government’s plan to borrow N1.67 trillion from foreign institutions to fund part of the N2.36 trillion deficit in the 2017 budget is not a viable option.

Okiti, at the 2017 Nigeria Economic Outlook Conference held on Thursday in Abuja, said Nigeria’s main hurdle to borrowing externally was the current poor economic performance.

According to him, institutions like the World Bank requires credible economic growth and recovery plan as prerequisites to borrowing.

“The Federal Government is projecting an external borrowing of N1.67 trillion in 2017.

This means that at an exchange rate of N305 to a dollar, the government is expected to borrow 5.475billion dollars.

“If you look at the country’s economic condition and rating, it is very difficult to see where these almost 5.5 billion dollars will come from. In 2016, the expectation was that the government would borrow 3.5 billion dollars. But at the end of the day, it only succeeded in borrowing 600 million dollars.

“If we succeed in getting the 1 billion dollars that the African Development Bank promised to borrow us, we are still left with more than 4 billion dollars to borrow. The highest I see us getting, through external borrowing, is 1.4 billion dollars,” he said..

Okiti said consequently, the government would have no choice but to either borrow locally and crowd out private borrowers or fail to implement the capital expenditure component of the budget.

“It was worrisome that the proposed N2.2 trillion Capital Expenditure is close to the N2.36 trillion shortfall in the budget.”

He also expressed concern that if the government could not borrow enough, it was likely to cut capital expenditure to meet its already bulging recurrent obligations such as salaries, overhead and debt service.

On revenue projections of the 2017 budget, he agreed that the crude oil revenue projection was realistic and achievable, so also some components of the non-oil revenue projections.

Okiti, however, said that the Corporate Income Tax (CIT) revenue projection of N808 billion for 2017 was unrealistic, even though, it was lower than the N867 billion projected in the 2016 budget.

According to him, only N323 billion accrued to the government from CIT in 2016 and that, so far, no new tactic has been introduced to show that there will be a leap of over N400 billion in this year’s CIT.

He said also that the Value Added Tax projection of N242billion and the Customs revenue projections of N278 billion were achievable with higher level of tax compliance.

“The oil price assumption of 42.5 dollars per barrel looks conservative since oil is now selling at over 50 dollars per barrel. Oil production of 2.2 million barrels per day is too ambitious because we have not done 2.2 million barrels per day in recent years.

“Averagely last year, we produced 1.6 million barrels per day; thus, in 2017, we should not project more than 1.9 million barrels per day.

“The N305 projected exchange rate, I believe is sustainable especially with higher foreign exchange expected in 2017 from oil prices. Nigeria’s decision on the J.V cash calls will reduce government revenue in the short term because Nigeria has to pay back the about 7billion dollars that it owes the IOCs.

“So, we expect that this deal will reduce government revenue from oil in the short term. However, in the long term, we think this is one of the best policies that this government has taken,” Okiti said.