Reports surfaced during the past week that the government was planning a gigantic N8 trillion Budget for the fiscal year 2016. This budget, if passed will be about 78% higher that the 2015 budget that was N4.49 trillion and will be a record in the history of Nigeria. Details surrounding this budget are still very sketchy as the government is yet to explain how it intends to fund it.
What we know
- Reuters claimed to have seen a “document” that contains information suggesting that the Government was planning a N7 trillion to N8 trillion budget in 2016
- The document was titled “The Economy – Where We Are Today”
- The document was from the office of the Vice President and was used as the basis for a presentation by Vice President Osinbajo in a two-day retreat with the newly approved Cabinet of the government.
- The document also reveals the government is proposing a capital expenditure of N2 trillion next year, up from N556 billion in 2015. This is almost 4 times 2015 capital expenditure budget.
- This suggest the proportion of capital expenditure to the Budget will be 25% compared to 12.3% in the 2015 budget.
- In a page titled “How can we get out of a possible recession?” the report outlines the need for a “massive infrastructure building” that will include roads, rail and power, along with “expansionist” fiscal and monetary policies.
- According to Reuters, the Government says this budget will be “paid for by a 25 billion naira infrastructure fund and a 2.5 trillion naira “special intervention fund”. But it gave no details of where this money would come from.”
Cost of the budget
- In the 2015 Budget approved by the National Assembly, the Federal Government based its budget on revenue of N3,452,335,000,000 (N3.45 trillion) leading to a deficit of about N1 trillion or -1.09% of GDP.
- The Government in its 2014- 2016 Medium Term Expenditure Framework (MTEF) had projected a budget deficit of -1.5% for 2016 based on a Budgeted expenditure of N4.8 trillion and Federal Revenue of N3.9 trillion.
- The MTEF also based its budget on a crude oil price of $76 per barrel at an exchange rate of N160. It also targeted a production output of 2.5497 million barrels per day.
- Exchange rate now officially hovers between N196 and N198 officially and crude oil price per barrel is about $49 (data from the CBN).
- Assuming the 2015 revenue, this budget will have a deficit of about N4.55 trillion or about -5% of our GDP. If achieved, the budgeted deficit will be unprecedented and could throw Nigeria into the spotlight as a high debtor developing country.
- Nigeria’s current total debt is about $63.8 billion which includes foreign debts of about $10.3 billion. Budget deficit could add another $23 billion to our debt profile and could cost Nigeria significantly in debt service payments.
- Analysts covered by Nairametrics believe to avoid borrowing to finance this deficit, the government will have to rely on revenue generated from taxes and levies if it is to come even close to a N6 trillion budget. They also believe it will also have to speed up sales of some of its legacy assets held on its behalf by the NNPC.
- The CBN has also been expanding its balance sheet growing from 23.1% of GDP in 2012 to 25.5% of GDP in 2013.
- The CBN is thought to be planning a grand Quantitative Easing (QE) program that could see it pump trillions into the economy via banks by effectively printing money
- CBN’s total asset currently stands at N17.3 trillion as at June 2015 from about N14.5 trillion in June 2014 (up 19%).
- Claim from the FG has nearly tripled in one year rising from N541.7 trillion to about N1.5 trillion between June 2014 and June 2015
It will be interesting to see how the government plans to fund this gigantic budget but by all indications we may be seeing one of the largest funding drive ever carried out by a Nigerian government.