On Thursday the National Assembly approved the 2017 budget, which sets total FGN revenue at N4.94trn and total spending at N7.44trn (US$24.3bn) including capital outlays of N2.24trn and debt service of N1.66trn. At this point we depend upon the local media for the figures but note that three of those cited above can be found in President Muhammadu Buhari’s speech to the assembly on 16 December. Total revenue appears to have been pushed up from N7.30trn.
The assumed average oil price has been lifted from US$42.5/b to US$44.5/b. The other core assumptions are unchanged from December (average crude output of 2.20 mbpd and exchange rate of N305 per US dollar). Since total revenue is also unchanged, the implication is that the FGN has sensibly trimmed its expectations of earnings from the non-oil economy.
The authorities have no choice but to use the current interbank exchange rate as their assumption in the budget. If this rate was adjusted towards or beyond the several other rates currently in operation, there would be gains for oil revenue and customs duty to be set against (smaller) budget losses for external debt service and official imports.
The projection for capital spending should be viewed in the context of the total of N1.2trn for the 2016 budget year (through to 06 May) reported on Friday by the federal finance ministry. The minister, Kemi Adeosun, said in March that releases for 2016 had reached a record N1.0trn (Good Morning Nigeria, 29 March 2017).
While we see the fiscal stimulus as a principal driver of Nigeria’s expected emergence from recession this year, we acknowledge its limitations. Total FGN spending in 2017 is forecast at just 6.3% of GDP in the Medium-Term Expenditure Framework. This ratio is low for a frontier/emerging market. Unless it boosts its revenue from the oil and non-oil economies, it cannot hike its spending and remain fiscally responsible (which it does).
The local media reports an allocation of N77bn for the amnesty programme, which we compare with the figure of N65bn in Buhari’s speech to the assembly in December. In our view this will be money well spent. It seems clear that the incidence of sabotage in the Niger Delta has eased since the FGN adopted a more conciliatory stance.
The media coverage refers to borrowing of N2.36trn this year. The aggregate numbers cited imply a FGN deficit of N2.50trn so we assume that the authorities will collect the small balance from asset sales, recoveries and the like.