The 2017-19 Medium-Term Expenditure Framework (MTEF) was approved by the Federal Executive Council on Wednesday and maintains the policy thrust of the administration. On the spending side, it targets social intervention and infrastructure. The federal budget and national planning minister, Udo Udoma, told a press conference in Abuja that the FGN had released N400bn year-to-date for capital projects. This compares with the full-year 2016 projection of N1.60trn.
This pro rata shortfall is traceable to underperformance in the collection of both oil and non-oil revenue. For oil, we need look no further than the increase in sabotage of industry infrastructure, which has pushed output ytd well below the projected 2.20 mbpd. For non-oil revenue collection, we take comfort from the bullish comments by the chair of the Federal Inland Revenue Service (Good Morning Nigeria, 21 July 2016).
The MTEF makes conservative oil price assumptions, rising from an average of US$42.5/b for next year to US$50/b for 2019. This provides protection if the output projections are not met, starting with 2.20 mbpd for 2017.
The framework is based upon an average exchange rate of N290 per US dollar for 2017. We do expect a correction once the new fx regime including the OTC futures contracts is fully functioning and the offshore investor community make the textbook response. However, given import demand which has proved resilient, we suspect that the correction will leave the naira well south of the projected level.
