Analysts point at success factors for 2016 budget

Analysts say that to bring about significant growth and poverty reduction in the Nigerian economy as envisioned in the 2016 N6 trillion planned budget, there must be effective coordination among some critical ministries, as well as expansionary fiscal policy and removal of fuel subsidy.

They add that there  must also be  investment in infrastructure, more responsiveness and responsibility on the part of the Federal Government and enhancement of the viability of the states through improved internally generated revenue (IGR).

The Federal Government on Monday pegged the benchmark oil price for the 2016 budget at $38 per barrel, with an estimated daily output of 2.2 million barrels, in a new three-year expenditure framework- the first in President Buhari’s administration, and subject to National Assembly approval.

Some analysts believe that the success of the fiscal team will depend on the ability of the key actors to articulate an aggressive but credible plan to reflate the economy which has been crippled by lower oil prices and foreign exchange restrictions so far in 2015.

“A well-articulated Medium Term Expenditure Framework (MTEF) for the next three years may suggest an inflexion point for the equities market, as this will be indicative of a fiscal expansionary stance. With emphasis on investment in key infrastructure (transport, power, support for SMEs, domestic agriculture and agro-based industries) by the administration, we envision a bright light at the end of the tunnel for the economy,” says Ayodeji Ebo, head, investment research, Afrinvest.

Ebo further says,  “We believe the ability of the cabinet to deliver a well-articulated fiscal plan will  essentially rest on the Minister of Budget & National Planning ( Udo Udoma), the Finance Minister (Kemi Adeosun), the Minister for Industry, Trade and Investment (Okechukwu Enelamah), and the Minister of Power, Works and Housing (Babatunde Fashola). If well deployed, we expect the outputs of the combined experience of this team to reflate the economy going forward.”

Ebo believes that “a possible expansionary fiscal year (which will reinforce domestic growth momentum), critical infrastructure spending in strategic sectors, removal of fuel subsidy on petrol and state governments’ viability, are some of the factors that the market anticipates for a change in sentiment.”

Friday Ameh, an energy analysts, sees $38 per barrel and 2.2 million barrels estimated daily output as too ambitious.

“The country has survived on lower benchmark before and the output is unrealistic considering the fact that we are not currently producing up to 2 million per day,” Ameh says.

Based on data from the recently approved supplementary budget, the estimated total expenditure for the second half of the year will close at N1.9tn, including capital expenditure of N25.8bn. Subsidy payment of N521.0bn which represents 91.0% of the supplementary budget, will account for 27.6% (from 8.9% in H1:2015) of recurrent spending in H2:2015.

“Consequently, we believe the argument for an outright removal of subsidy becomes compelling as it would have saved government a total of N680.0bn (20% of total expenditure) in 2015. In addition, without subsidy removal, fiscal deficit is estimated at N1.0tn (budgeted) or N829bn (FY:2015 projection)” Ebo says.

“Moreover, a removal of subsidy immediately puts government cash flow in a surplus position of N24.7bn and significantly strengthens the treasury’s position before approaching the debt market for funding. In addition to the outright savings from subsidy removal, we have also assumed that non-debt recurrent expenditure (ex-subsidy) can also be managed downwards by 10.0% as a result of shutting down subsidy-related MDAs no longer required,” Ebo further said.

Analysis of the economic potential of the various states in the country indicates they can be self sustaining and need not depend so heavily on Federal allocation.

Buhari’s government plans to spend N6 trillion to boost the ailing economy in 2016 and most of that- at least 70 percent or N4.2 trillion, would be spent on recurrent expenditure, while the remaining N1.8 trillion would go to capital expenditure.

At the Federal Executive Council (FEC) meeting, Buhari and his ministers adopted the Medium Term Framework (MTEF), Government’s spending plan, which will set the economic policy for the next three years.

The document proposes an expansionist budgetary spending to N6 trillion in 2016, increasing by N1trillion from last year’s, which was N5trillion including the supplementary.

The data for Internally Generated Revenue for each of the 36 states in the Country in 2014 released by the National Bureau of Statistics (NBS) indicated that only Lagos and Rivers States accounted for about 51.6% of total IGR in 2014.

The 2015 budget shows that total government revenue amounted to N3.5tn while total expenditure was estimated at N4.5tn for the year. Capital expenditure was projected at N0.6tn relative to the recurrent component of N3.9tn.

John Omachonu