Eighty days after Nigeria’s new President Muhammad Buhari was sworn-in, the chance of the country getting a head start on passing the 2016 budget is in doubt due to the continued policy vacuum.
The President has yet to appoint a cabinet, while Nigeria’s notoriously slow legislators (whose job it is to confirm appointees) are also about to go on break.
“The president is categorical that ministers will not be nominated until September 2015; the National Assembly (NASS) will shortly go on recess till September; and there is no indication whatsoever of when the 2016 budget will be presented to parliament,” Opeyemi Agbaje, CEO of consulting firm, RTC Advisory Services, said in an August 13 note.
“NASS is also likely to take a Christmas/New Year recess; in the circumstances, there is no reason to believe a budget will be written before November/December or passed before February/March 2016.”
The IMF World Economic Outlook (WEO) for July revised Nigeria’s growth projection down to 4.5 percent from 4.8 per cent, reflecting policy uncertainty, lower oil prices, delay in forming a government, and projected decline in output.
An early presentation of a spending plan by a substantive Finance Minister could help remove the current uncertainty, as investors get an insight into the government’s economic direction.
Most foreign investors are currently avoiding naira assets, until they know Buhari’s plans for the exchange rate and budget, according to analysts.
“A significant quantum of fund has left the Nigerian market since February 2015…on the heel of FX uncertainties and broad macroeconomic weakness,” Abiodun Keripe, Head of Research at Elixir Investment Partners Limited, said.
Uncertainty over the direction of oil prices adds to the urgency to begin preparing Nigeria’s next budget as the country uses proceeds from the sale of crude to fund 80 percent of its budget and up to 95 percent of dollar reserves.
The 2015 budget is based on a $53 per barrel oil benchmark. However, last week, oil headed for the longest weekly decline since January, amid signs of a continuation of the global glut.
Brent for September settlement fell 29 cents, or 0.6 percent, to $48.93 a barrel, more than 30 percent from its June closing peak.
Some analysts see oil prices falling further by year end.
“By Christmas time we will probably be rebounding off new lows off of the mid to low 30s. We are going to take out the March lows of $43 and trade down to the 30s in my view,” John Kilduff, founding partner of Again Capital told CNBCs “Squawk Box” last week.
The lack of a fiscal policy stance by the government means efforts to improve non-oil revenues are likely to underachieve.
Efforts to control the growth trajectory of the domestic debt, perhaps by shifting to a higher mix of foreign debt are also unclear, especially with the looming U.S Fed rate hike.
The 2015 budget projects that the debt service expense will rise to N943 billion, or about 22 percent of the total budget.
Even an early presentation of the budget, often does not guarantee a quick passage.
Last year, the 2015 Budget Appropriation Bill presented to the National Assembly by former Finance Minister, Ngozi Okonjo- Iweala on December 18, 2014 was not passed by parliament until late April 2015.
“It remains to be seen whether whenever a policy profile and budget are available, that they will be market-friendly or meet the expectations of business,” Agbaje said.