The Impact of the Delayed Budget Passing

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Wednesday, April 11, 2018 /10:01AM /FDC  

Background
The National Assembly has announced that the 2018 national budget will be passed in May. This is contrary to an earlier announcement by the speaker of the house, Yakubu Dogara that the N8.6trn budget will be passed on April 24th.

According to reports, the date was postponed as NASS said some ministries were yet to defend their budget proposals.  This is not surprising news. The delay in the passage of the budget has almost become a norm in Nigeria.

In 2016, the NASS passed the budget in March. However, padding allegations by the President delayed the final sign off till May 6th.

In 2017, the Senate alleged that the Nigerian police had taken 18 files needed to fully assess the budget. In the end, NASS passed the N7.4trn budget on May 11th, and the Acting President, Yemi Osinbajo signed it into law on June 12th.  Every year since 2014, the national budget has been passed and signed into law around May/June.

Implications
Nevertheless, this delay in the budget would still have the following effects:

• Postpone the multiplier effect of government spending. Recurrent expenditure boosts injections, while capital spending reduces the country’s infrastructure deficit. The latter will also support activity in the construction sector, which grew by 1% in 2017. 

• The government will have less time to use these funds. This brings into question the issue of the absorptive capacity of the economy. Assuming the budget is passed and signed in May, the government will only have 7 months to spend what was initially meant for a 12-month budget calendar. However, as it has always done in the past, the government is likely to extend the timeline of the budget from December to Q1 of the next year. As at December 2017, the government had spent less than 50% of its 2017 capex budget and had announced that the remaining funds will be rolled over to 2018. The implementation of the 2017 budget will be extended May 31st, 2018.

• The delay will postpone the inflationary and exchange rate pressures that usually come with increased government spending. This is because more money in the system would translate into increased consumption and higher demand for forex. Dollar demand, as a result of the budget passage, is estimated to increase by $5bn in H2. This could also lead to a depletion of external reserves. 

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