2016 budget won’t scratch surface of Nigeria’s major economic pains

Nigeria’s 2016 budget which when signed into law is supposed to help the country spend its way out of an economic slump is increasingly being touted as the miracle cure for all for ills facing Africa’s largest economy.

Look a little bit closer and there are enough structural impediments to growth in Nigeria’s N100 trillion ($500 bn) economy to torpedo any lift expected from the proposed N6 trillion ($30 bn) spending plan.

But Zainab Ahmed, minister of state, Budget and National Planning, said Wednesday that President Muhammadu Buhari’s 2016 budget will focus on 34 priority as he begins implementation of the 2016 budget which has faced a lot of controversies

Revenue shortfalls for Nigeria have been significant and fiscal and current account balances have deteriorated due to the largest 18 month decline in real crude oil prices in any period between 1970 and 2015.

Growth has more than halved to 2.8 percent in 2015, a wide premium between the official and parallel market rate for FX has emerged due to exchange rate restrictions and in the process, indicators of financial soundness have deteriorated.

The non performing loans of banks have jumped, inflation and unemployment has worsened, while the prospect of fiscal and monetary policy becoming misaligned has heightened as the size of the fiscal deficit becomes inconsistent with the Central Bank of Nigeria’s (CBN) goal to rein in inflation.

“The high growth over the last decade was made possible by economic reforms and sound policies on the domestic front, coupled with a highly favorable external environment, including high commodity prices and ample inexpensive capital inflows,” the International Monetary Fund (IMF), said in a regional economic outlook released last week.

“With the external environment now much less supportive though, a policy reset is needed to reinvigorate the growth momentum.”

The 2016 budget deficit will more than double to N2.2 trillion, or 2.16 percent of gross domestic product, according to the proposals.

The Government expects to plug the deficit with N1.84 trillion of borrowing, N900 billion of which will come from international debt markets.

While Nigeria’s total debt burden is low at about 20 percent of GDP, its debt service to revenues ratio of about 30 percent is the highest in the world, barring Yemen and Lebanon, IMF data shows.

The Federal Government is expected to spend N1.48 trillion on interest payments on its debts in 2016.

“The upcoming first anniversary of the current government is a good opportunity to retrace steps on refineries, subsidies and exchange rate,” Bismarck Rewane, CEO of consulting firm, Financial Derivatives Company (FDC), said in a May 05 presentation.

The FAAC revenues shared by the three tiers of government fell to N299bn in April, the lowest level in six years.

This highlights the need for the Government to fix the revenue side of its budget through reforms of the economy that improves the business environment and boosts tax takes.

Slower growth in emerging markets and lower production costs will put downward pressure on long-dated oil prices, according to Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc.

This may mean oil prices could stay lower for longer (Goldman Sachs predicts $54 per barrel over the next 5 years) and pressure Nigeria’s budget if the country does not move quickly to implement reforms.

“The 2016 budget, developed by the Buhari administration which is expected to be signed imminently, aims to reduce the share of revenue coming from oil to 19.5%, compared with 47.6% in the 2015 budget and above 60% in prior years,” Moody’s Investor Services, said in a April 29 note in which it downgraded Nigeria’s sovereign issuer rating to B1 from Ba3.

“The objectives are extremely ambitious: since 2012, non-oil tax revenue has gradually grown but at a much lower pace, and the limitations on the government’s ability to generate revenue is reflected in revenue to GDP ratio of below 7%. Should the government not achieve its objectives, real growth in 2016 is likely to remain subdued, and the government’s balance sheet could deteriorate further,” Moody’s said.

Nigeria’s 2016 budget proposes that capital expenditure, as opposed to recurrent spending on public sector salaries and pensions, will more than triple to N1.8 trillion this year.

For the IMF a much more robust and prompt policy response is needed from oil producers like Nigeria given the prospect of an extended period of sharply lower commodity prices.

“To date, the policy response to a terms-of-trade decline of historic magnitude has to a large extent been hesitant and insufficient,” the IMF said.

FEC approves 34 priority areas

President Muhammadu Buhari’s 2016 budget will focus on 34 priority as he begins implementation of the 2016 budget, minister of state Budget and National Planning, Zainab Ahmed said Wednesday.

This was a major discussion at the unannounced Federal Executive Council meeting that was chaired by Vice President Yemi Osinbajo, the minister told journalists at a briefing after the FEC meeting.

The 34 “priority areas” will be executed and completed in 2016 under four thematic areas.

The presidency, she said, is also expecting a final copy of the 2016 budget from the National Assembly for presidential assent “today or tomorrow”.

The 34 priority projects were evolved with clear deliverable targets and are grouped into four broad objectives – security/policy governance; diversification of economy; succour for vulnerable Nigerians; and reflating the economy through investments, Ahmed said.

“We presented 34 strategic priority programmes that need to be realised within 2016. Each of these programmes has very clear deliverables and targets and indicators which will be measured to ensure that the respective Ministries, Departments and Agencies (MDAs) deliver on what we committed to implement.

“These 34 specific areas are grouped into four major objectives. The first is policy, governance and security, second diversification of the economy, the third is creating support for the poor and the vulnerable and the forth is reflecting our economy through investment.

“The paper was well received by council, we got some very positive comments and the 34 priority projects were approved for implementation. The Ministry of Budget and National Planning has been given responsibility to track  and report on quarterly basis to the council on the performance of these key prority areas” she said.

She said, on the policy government intends to achieve and maintain a capital spend minimum of 30 per cent in an annual basis starting from 2016.

“The objective of doing that is to reflate the economy and enhance employment generation capacity for the productive sector. Another area is to achieve an appropriate exchange regime, the Central Bank of Nigeria (CBN) is leading this particular action, the objective is to achieve a predictable exchange rate by the end of 2016.

“Let me emphasis that when we say we want to move towards a predictable exchange rate in the country, we are not planning to devalue the naria. The CBN and the money policy committee is working on this and will be concluded and made available to the country to enable users be able to predict the exchange rate at any point in time”.

The 34 priority areas also target to increase low interest lending to the real sector, while  the focus is to achieve an interest rate that is single digit maybe nine per cent and the purpose is to increase output and growth, she said.

“We also have a target to maintain a stable debt management strategy so that we can optimise the local and foreign debts that we have and the Ministry of Finance and the Debt Management Office will be taking action on this” she added.

Ahmed also disclosed that FEC approved a three year target to achieve self-sufficiency in refined petroleum products.

According to Ahmed, the objective of the three-year deadline is to ensure availability of refined products, reduce demand on foreign exchange as well as export refined products.

She said, “We are setting a three-year deadline to achieve self-sufficiency in  refined petroleum products and to become a net exporter of petroleum products. The objective of this is to increase domestic supply of refined products and to reduce demand on foreign exchange for importing refined products in our country. The ministry of petroleum is pushing this. There is also a plan to push for the passage of the Petroleum Industry Bill (PIB) in conjunction with the National Assembly”.

Meanwhile the President may sign the 2016 budget anytime from today (Thursday) as the both the executive and the legislative arms of government are working on a final copy of the document. He is likely to sign the document before proceeding to Katsina for the investment summit.

Minister of State for Budget and National Planning, said the National Assembly will commence the process of transmitting the document to the President between Thursday and Friday.

PATRICK ATUANYA &  Elizabeth Archibong