Rewards of fiscal policy in stages

The economic record of this administration will be judged on its fiscal performance. It was therefore encouraging to hear an upbeat yet realistic narrative from the federal finance minister, Kemi Adeosun, at our investor conference yesterday in Lagos. She answered our questions in a prerecorded interview. If we were to isolate one message, it would be that the FGN is determined to pursue its economic agenda and that substantial gains beckon provided that Nigerians are patient.
The FGN aims to double tax revenues as a percentage of GDP in the next five years to 10%. We assume that she had non-oil revenues in mind, and note that the target is conservative, even by low-income country standards. 

The minister was adamant that the FGN can halt the remorseless rise in recurrent spending without job cuts. One of the initiatives in progress is the continuing audit of the public payroll to root out inflated or bogus claims. She was confident that large savings would be achieved once the exercise was extended to the military and paramilitary services. 

Capital spending is the beneficiary of recurrent expenditure discipline. The minister said that capital releases year-to-date amount to N725bn. (CBN data show the total last year at N660bn.) 

If the FGN was able to push through its budget earlier in the year, then the releases could be made more quickly to the advantage of growth. At an earlier  event, we recall the minister suggesting that the delay in the passage of this year’s budget, while regrettable, did at least bring some “procedural” victories for the FGN in its annual tussle with the National Assembly. 

On the forthcoming Eurobond issue, she did not dismiss the idea that the FGN might raise more than the proposed US$1bn if the price and the bid permitted. 

The minister noted that the 2016 budget projects external financing of N900bn to cover the deficit. The devaluation in June gave the ministry some room for manoeuvre since the fx equivalent is now rather less than the original US$4.5bn. The World Bank element of the financing is therefore being pushed back into 2017. 

On the non-debt creating part of deficit financing for 2016, she urged patience on recoveries, noting a pattern of lengthy delays due to legal challenges. Asset sales also do not create debt but can cover deficits. The minister observed that the domestic debate about a fire sale of state-owned assets was not initiated by the FGN and that negotiating from a position of weakness (low oil prices in this case) was generally not a good idea.

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