Nigerians are likely to see more money trickle into their pockets if government faithfully implements its proposed spending plans for next year.
The 2010 budget, sent yesterday by the President, Umaru Yar’Adua, to the National Assembly for approval, shows a clear indication and realization that private sector demand has virtually collapsed in the economy and that
government is determined to spend its way to realize reasonable growth next year.
Government is increasing its spending next year by as much as N1 trillion in its bid to get the wheels of the economy working and analysts say this should have a trickle down effect of seeing Nigerians benefit from the overall boost in economic activities.
Government hopes to stimulate the economy through the construction of roads, developing the Niger Delta, rehabilitation of the ailing power sector and reducing domestic debt.
It is expected that the spending on critical sectors as enumerated in the budget proposal will create more jobs, both skilled and unskilled.
President Umaru Yar’Adua had in the budget said that it expects oil production of 2.088 million barrels per day at benchmark price of $57 per barrel; Joint Venture cash calls of $5 billion; average exchange rate of N150 to the US dollar; target GDP growth rate of 6.1 percent and target inflation rate of 11.2 percent.
This is against this year’s projection of 2.292mbpd in oil production, benchmark oil price of $45/barrel, Joint Venture cash calls of $5 billion, GDP growth rate of 8.9 percent and inflation rate of 8.2 percent.
“The purpose of the 2010 budget is to accelerate economic recovery through targeted fiscal interventions intended to further stimulate the economy and support private sector growth,” Yar’Adua said in a budget statement presented to parliament by one of his aides.
The statement said N1.37 trillion was budgeted for capital expenditure and N2.011 trillion for recurrent, non-debt expenditure.
Yar’Adua said the deficit will be funded partly through a planned $500 million international bond, the proceeds of a planned oil licensing round, domestic borrowing, privatisation proceeds and windfall oil savings.
The president said that next year’s budget will be based on medium-term priority, focused on fully implementing the Seven-Point Agenda. “We will enhance our power infrastructure to deliver 10,000 mega watts by the end of 2011”, he said.
In fact, he said that budget provides about 90 percent of Ministries Departments and Agencies (MDAs’) capital expenditure to five key priority sectors, including critical infrastructure; human capital development; land reform and food security; physical security, law and order; and the Niger Delta.
But some industrialists and analysts have bemoaned the poor execution of the budget to which government acknowledged. Ahmad Rabiu, president Kano Chamber of Commerce and Industry says when the government spends more the economy becomes rosier. But the problem is that utilisation of the budgeted amount is the not adhered to. He said the business community he represents is sad about the development. He disputed government’s claim of achieving 50 percent capital utilisation government as at October this year, saying only about 30 percent was actually achieved. This, to him, leaves much to be desired.
“There is no use preparing a budget that the government has no intention of implementing fully. But if the government, for once, will fully implement the budget as presented, the economy will without doubt do better and Nigerians would be better for it”, Rabiu stated.
Muda Yusuf, director general of the Lagos Chamber of Commerce and Industry, said it is not enough to have the proposed budget figures. “Let the government come out with a well defined policy direction on which the economy should go.” He said the increase in budget spending signals the fact that government is ready to resume serious spending as stimulus for economic growth.
“Although the deficit will likely exceed targets established under fiscal responsibility guidelines ... this is no surprise given that priority areas are infrastructure and the Niger Delta,” London-based Knight Libertas analyst, Richard Segal, told Reuters.
“The accountability of spending in these two areas will be crucial to sustain the confidence of local investors,” he said.
Michael Hugman, emerging markets strategist at Standard Bank in London, said the expansionary budget would have some positive effects in the immediate term but noted there was an inflationary risk, particularly if the government goes ahead with plans to abolish fuel subsidies.
“In the short-term, (the expansionary element) will be positive for growth, equities and also, somewhat perversely, bonds, which we believe are being driven by a combination of flight to quality by banks and pension funds together with repeated liquidity injections into the market,” he said.
“However, when combined with inflationary risks from fuel price deregulation and possibly poor food production over the next few months, there is danger inflation can head back towards 15 percent year-on-year by mid-2010.”
