Budget 2018: Still Priming the Pump


Wednesday, November 08, 2017 5:25PM / Proshare Research 

On Monday, November 8, 2017, President, Muhammadu Buhari laid before the legislature, the proposed 2018 budget for Nigeria. The objective of the early presentation of the budget is to resort back to the January to December fiscal time frame in order to end the cycle of carrying over projects into the next horizon. 

According to President Buhari, early ratification of the budget will reduce the possibility of lag effects on the economy and ensure the effectiveness of fiscal multiplier. Certainly, reducing such lag effects at this point will sustain the recovery. 

Moreover, the 2018 budget is symbolic, as it ushers in another medium-term expenditure frame work.   

In response to the present performance of the economy in 2018, the Federal Government revised down its earlier growth projections from 4.5% to 3.5% but remain upbeat on currency stability and inflation. 

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The Federal Government projection on oil prices rose by 11.2% compared to 2017, implying that oil prices will be more of a leg wind to price stability in 2018. However, government remains conservative on exchange rate, at the same time hinting the possibility of maintaining the crawling peg in 2018. 

In a follow up to the previous budget and in line with the ERGP, President Buhari in his presentation made it clear that the 2018 budget will be anchored on the following: 

·   Sustain it expenditure switch approach (Priming the pump)

·   Diversifying its revenue base

·   Increase its VAT to GDP ratio

·   Ensure the dilution of domestic debt by restructuring the debt ratio of domestic to foreign, which stands at  79:21 to 60:40 in 2020

·    Ensure deficit to GDP is below 3%

·   Ensure that more than 30% of revenue is expended on capital expenditure

·   Strengthening of fiscal house cleaning across ministries   and agency 

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The proposed expenditure of N8.612 trillion in 2018, reflects a 16% increase compared to 2017. Therefore, reflective of the Federal Government’s policy to sustaining an expenditure switch approach, as they intend to keep priming the pump. 

Non-interest expense and interest expense stood at N3.494 trillion and N2.014 trillion, respectively, making up 40.5% and 20.38% of total expenditure. 

Projected total revenue in 2018 stood at N6.07 trillion, which is 6.5% of GDP. Projected oil revenue for the same period stood at N2.442 trillion, thus making oil revenue 32.4% of total revenue and 2.4% of GDP. 

Regardless, tepid demand growth and oil shale producers remain a headwind to oil revenue.  Non-oil revenue for 2017 stands at N4.165 trillion and 63.03% of total revenue and 4.1% of GDP, thereby reflective of government’s drive to diversify the present revenue base. 

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Expectedly, reforms such as Voluntary Assets and Income Declaration Scheme (VAIDS), disposal of government non-oil asset and gradual improvement in the output will increase non-oil revenue. Regardless, structural factors still remain a threat to non-oil revenue, as non-oil revenue fell short by 53% of projection in the first half of 2017. Proposed budget deficit stood at N2.005 trillion, which is 1.97% of budget deficit. At the same time in line with policy objective of maintain deficit to GDP below 3%. 

Moreover, 50% of the borrowings to finance the budget deficit will be sourced externally, in order to clamp down on astronomical rise in debt serving. Although external debt provides ample room to decelerate the growth in interest expenditure; at the same time the urgency to manage external shock better cannot be underemphasized as external debt is employed more frequently in debt management.     

In contrast to the previous budget, the 2018 budget tend to be more accommodative of private participation. The budget further shows the willingness of government to partner with the private sector in reducing the state of infrastructural glut across the country. 

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