Budget headwinds challenge 2015 growth forecasts

There are indications of emerging challenges against the nation’s quest for development and growth projections in 2015, going by the figures in the approved 2015 fiscal plan (budget).

Besides, the incoming government may have been set up to either confront greater challenges in managing the macroeconomic environment or be forced to review the appropriation Act.

Already, the absence of clearly written line item on fuel subsidy has jolted the economy, with a 100 per cent rise in transport costs, which directly impacts on the prices of goods and services, with attendant fall in standard of living.

Though it appeared that the Minister of Finance and Coordinating Minister of Economy, Dr. Ngozi Okojo-Iweala, had paid about N156 billion to fuel marketers to quell their threats of halting the commodity’s importation, the first fiscal distortion in the 2015 budget may have started by the payment, which cannot be identified in the fiscal document.

But Afrinvest Securities Limited in its weekly report, also noted that the approved budget at N4.5 trillion, represented N134.4 billion increase from the originally proposed N4.4 trillion by the Executive in late 2014.

However, despite the increment and subsequent marginal reduction in the recurrent expenditure profile by N0.5 billion to N2.6 trillion, the capital expenditure, which is the driver of the growth indices, was scaled down as well by additional N85.9 billion to N557 billion from N642.8 billion earlier proposed.

The budget figures, which is currently eliciting questions on the sources of the 2015 growth projections, simply showed that the recurrent expenditure is approximately five times the capital expenditure, meaning that every five items consumed, only one is reproduced.

“Drafted on the assumption of $53.0 oil benchmark; exchange rate of N190/$; 2.3 million barrel per day crude oil production; 5.5 per cent Gross Domestic Product (GDP) growth rate; and 1.1 per cent deficit to GDP ratio, we think the 2015 appropriation bill as passed by the National assembly seemed disconnected with present realities in the economy in a number ways.

“The most telling among the shortcomings of the budget includes the outright exclusion of fuel subsidy payment by both the Upper and Lower Chambers,” analysts at the securities company said.

Meanwhile, there seems to be a deepening of the nation’s development challenges, with the debt service provision hitting the N900 billion-mark for the first time and the capital expenditure profile for the over 170 million population put at about 12 per cent of the entire budget.

The development may also mean that 88 per cent of the nation’s budget for 2015 is meant for consumption, which would spell a damning effect on growth, wealth creation and other economic linkages in 2016.

In the same vein, the nation’s foreign exchange (forex) market at the weekend, witnessed a fresh round of volatility in the bureau de change segment, popularly known as “black market”, with the naira almost falling to status quo before the Presidential election result’s announcement.

An investigation by The Guardian over the weekend, showed that the parallel market rates across Lagos State trended in favour of the major currencies with the dollar exchanging for N221; euro N244; and N339 for British pounds.

The President of the Association of Bureau De Change Operators of Nigeria, Aminu Gwadabe, in a note to The Guardian, attributed the development to “the falling dollar strength in the international market (excluding Nigeria), is the reason for the strength of other currencies. The local rates are reacting to the dynamics in the international market.”

Despite dollar auction sales worth $91.2 million by international oil companies at the beginning of last week, the naira closed flat at N199.1/$ at the interbank market and maintained throughout the week.

The clearing rate of the Central Bank of Nigeria (CBN) steadied at N197/$ all through the week, while as a follow up to it’s yearly withdrawal limit on overseas card holders to $50,000 from $150,000 and daily limit of $300, it clarified that customers’ cards linked to domiciliary accounts overseas are not affected.

“Although we suspect that demand for the dollar by travelers may increase locally as a result of this decision, we expect exchange rate to continue to trade within the current level at the interbank segment of the forex market this week,” Afrinvest added.