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Economic Update- Nigeria: Analysis Of 2014 Budget

Category: Nigeria Economy

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Economic Update- Nigeria: Analysis Of 2014 Budget

Wednesday, January 29, 2014 / DLM Research

Key highlights of the 2014 Budget. In the appropriation bill for the 2014 fiscal year, Nigeria's federal government is proposing a N4.91trillion spending plan, representing a decline of c.1.52% over the N4.99trillion appropriated for the 2013 fiscal year. In our opinion, the year-on-year decline in the 2014 budget is noteworthy as it compares favourably to the increase in aggregate expenditure recorded between 2010 and 2013 which averaged c.18.31percent (fig.1).

The 2014 aggregate expenditure figure comprises of N1.10trillion for capital expenditure, N2.43trillion for recurrent expenditure, N399.69billion for statutory transfers and N712.00billion for debt service (fig.2). We also highlight the provision of N268.37billion earmarked for the Subsidy Reinvestment (SURE-P) programme which consists of the Federal Government‟s savings from the partial removal of fuel subsidy in January 2012 augmented by the 2013 unspent balances.  

The budget was underpinned by some assumptions which included an average exchange rate of N160/$, a projected oil production level of ~2.39million barrels per day, down by 5.53% from the 2.53million barrels per day projected for 2013. The benchmark oil price was set at US$77.5/barrel, a decline from the US$79/barrel approved in the 2013 Budget while GDP growth was estimated at 6.75%, up from the 6.50% projected for 2013 (fig.3). We are of the view that the exchange rate assumption may be relatively optimistic in view of expected increase in spending (in preparation for the 2015 elections) in the domestic economy which would bring about possible pressures on exchange rate coupled with activities in the external environment.

However, the percentage of recurrent expenditure to total spending increased significantly. Recurrent expenditure has been a larger component of Nigeria's annual national budgets as it has averaged c.69.51% of aggregate expenditure in the last seven years. This brings to the fore the country's largely inadequate physical infrastructure fuelled by pressures arising from rapidly increasing population growth and lower allocation to capital projects which has averaged c.30.49% over the same period. Whilst we commended the decline in the ratio of recurrent expenditure to total spending in the 2012 and 2013 budgets, we note a trend reversal as the percentage of recurrent expenditure to total expenditure is estimated to increase to c.76.30% from c.67.50% in the 2013 budget. Consequently, capital expenditure as a share of aggregate spending is estimated at c.23.70% in 2014 from c.32.50% in 2013 (fig.4).

Whilst we state that the reduction in aggregate expenditure highlights the government‟s attempt to sustain fiscal consolidation the make-up of that spending still poses some concerns. We are of the view that a shift in government spending profile in favour of capital projects will further aid sustainable economic growth in the years ahead.

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