Budget minister says Nigeria may “adjust” spending to curtail biggest deficit in 9 years
The uncharacteristic event venue and the absence of flamboyant banners and brochures at a consultative forum organised by the ministry of budget last week, were perhaps the biggest indicators that morning, that Nigeria’s revenues are overstretched and the need to cut down spending is supreme.
At the event which held at the Metropolitan Club, in Victoria Island, Lagos, Udoma Udo Udoma, minister of budget and national planning, said the option to “adjust spending” was on the table, as government considers alternatives to curtail its biggest fiscal deficit in nine years.
“We may look at adjusting some of our expenditure projections downwards, instead of resorting to extra borrowing,” Udoma said.
Lower than expected oil and non-oil revenues saw the Federal Government’s fiscal deficit rise sharply by 101 percent, to a nine-year high of N1.1 trillion in the first quarter of 2017, according to data compiled by BusinessDay.
That’s two times the size of a prorate estimate of N575 billion and at such pace, could swell further to N4 trillion by year-end.
“Given the need to stimulate the economy by spending on capital projects, the best option, however, will be to boost our revenues, especially by improving our tax take,” Udoma added.
Alternatively, analysts say the government could leverage Public Private Partnerships (PPPs) to complement weak revenues and invest in infrastructure.
However, a PPP arrangement with the government is not attractive at this time, some investors tell BusinessDay.
“There is no blueprint that explicitly addresses PPPs and the feeble attempts made so far have all ended unpleasantly,” one investor, who didn’t want to be named, said.
“The MM2 airport terminal, the Lekki-Epe road, and the seaport in Port-Harcourt, are all instances of failed PPPs, where the government mostly did not honour its part of the deal,” another investor said.
Such trends trump investor confidence, according to Johnson Chukwu, CEO of Lagos-based financial advisory firm, Cowry Assets.
“There must be a legal framework to ensure that government is unable to back-track on the agreement it enters with the investor. It’s the only way it can work. Without this, the investors will stay away,” Chukwu said.
Nigeria’s economy, which vies with South Africa’s to be the largest on the continent, shrunk by 1.5 percent last year, the first contraction since 1991, after revenue from oil, its biggest export, fell by almost half.
Pressed to spend its way out of economic recession, Nigeria signed off a N7.4 trillion budget for 2017, the biggest budget ever, in naira terms, even when it does not have the revenues to back it up, with oil trading at half the price today, compared to early 2014.
The budget minister rightly alluded to the infinitesimal size of the 2017 budget, which if shared per Nigerian comes to around 40,000 per annum and is less than 7 percent of the country’s N90 trillion Gross Domestic Product (GDP).
For inclusive and sustainable growth, attracting private capital is crucial. But that is hardly a new counsel for Africa’s most populous nation, tipped to expand by a paltry 0.8 percent this year, by the International Monetary Fund (IMF).
The budget has a N2.36 trillion deficit, but oil and non-oil revenues have missed the government’s target by almost 50 percent, according to CBN data, stoking the deficit and forced government to borrow at a frantic pace.
The Federal Government’s gross revenue was N458.42 billion in May, 48.8 percent short of the monthly budget estimate of N894.76 billion, according to the CBN’s monthly report.
This has been the trend throughout this year. Actual revenues have flunked government targets, plagued by huge slippages in non-oil revenues and low oil prices and production to a less extent now.
The country’s non-oil revenue, expected to relieve oil as the government’s dominant source of cash, came in at N1.13 trillion in the first five months of 2017.
That is half the size of a N2.2 trillion five-month target set by the government (federal and states) for 2017.
Meanwhile, various analysts, and more recently, the World Bank, have expressed concerns over Nigeria’s debt profile, citing the inadequacy of current revenues to sustain interest rate payments.
For each naira earned, government coughs up 66 kobo in interest payments, according to the International Monetary Fund (IMF).
The Federal Government’s total domestic debt stock as at March 2017 rose 8 percent, to N11.9 trillion, from N11.05 trillion as at December 2016, while external debt stood at $US 39 billion, according to data from the Debt Management Office (DMO).
Old worries over government’s rising debt profile were rekindled after Central Bank governor, Godwin Emefiele said at the last monetary policy meeting, that the Federal Government’s deficit hit N2.5 trillion in the first half of the year.
Ben Akabueze, the director-general of the Budget Office of the Federation, however said at the consultative forum, that the N2.5 trillion deficit was “tentative” and “incomprehensive.” and that “it could turn out much less than that.”
Nigeria’s total debt stock rose 10 percent to N19.15 trillion at the end of first quarter 2017, from the N17.36 trillion at the end of last year, according to data from the Debt Management Office (DMO).
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