Positive budget proposals: just pass it!

While we wait for the National Assembly to conclude its debate on the 2017 budget proposals, we look for promising trends in the FGN’s fiscal stance. Happily, we have identified several. This is fortunate since the authorities’ hopes of lifting the economy out of recession this year rest largely upon the fiscal stimulus in the budget. We make no apologies for the many figures in this column: an analysis of the budget would be worthless without them.

There are some welcome developments to report on the revenue side. The first is the new realism in the projection of N1.37trn for the FGN’s share of non-oil revenue collection in 2017. This is clearly warranted when we consider that total revenue in January-September amounted to N2.17trn, compared with the full-year budget of N3.86trn and representing a 25% shortfall on a pro rata basis. The underperformance can be traced both to sabotage of infrastructure in the Niger Delta and to overambitious targets on the non-oil side.

The second positive on revenue in the proposals is the projection of N1.98trn for the FGN’s share of oil revenue. It is a positive because of a subtle movement in the FGN’s position on insecurity in the Niger Delta. The FGN now acknowledges that it has to engage the said militants and the vice president is making regular visits to the delta for talks with community leaders.

Further, it has incorporated payments under the amnesty in its current budget proposals. To paraphrase its own words, the diversification of the economy away from oil requires a sizeable boost to oil revenues. There is evidence that the new approach is successful. The NNPC’s latest monthly report puts production of crude oil and condensates back at 1.92 mbpd in November, the highest level since April. This recovery in output, which has since been maintained, is offered in semi-official circles as the explanation for the increase of US$5.0bn in gross official reserves since end-October.

Gregory Kronsten
Head, Macroeconomic & Fixed Income Research

Source: Business Day, 20 February, 2017.
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