As we are all aware, the global economy witnessed immense shocks during the period 2008 into the better part of 2009, with resultant financial sector crisis and economic meltdown that affected almost every economy across the globe.
The Nigerian economy was not left out. World growth was projected to contract by about 1 per cent in 2009 and to expand by about 3 per cent in 2010, which is well below the rates achieved before the crisis. The global economic crisis has led to decline in global flows of trade, which has led to reduced economic output with adverse consequences on living standards and job creation, throwing most leading economies into recession.
For the Nigerian economy, 2009 was certainly a year during which the challenges posed to the world economy brought unusual uncertainty to the Nigerian economy. The unintended consequences of the post consolidation banking reforms led to tight monetary and credit conditions. However, fiscal developments during 2009 continued to support macroeconomic stability as well as increased spending on critical infrastructures to diversify the base of the economy. This trend is expected to be sustained in 2010.
Also, government's debt position remains sustainable, with an external debt stock of US$3.947 billion as at December 2009. Besides, Nigeria's external reserve position remains quite comfortable in view of the external liabilities of the private and public sector, as well as, import coverage. The official and parallel market exchange rates have converged considerably as a result of further liberalisation of the inter-bank market by the Central Bank of Nigeria. This trend will be sustained in the coming years, especially in 2010 when substantial recovery of oil production is expected with improved performance in critical sectors and overall real GDP growth.
The highly influential Standard and Poor's Ratings Services upgraded Nigeria's rating outlook from 'negative' to 'stable' and reaffirmed the 'B' foreign and local currency short-term rating. However, the agency lowered the Federal Government's BB- foreign currency and BB local currency long-term sovereign credit ratings to B+. The above were largely the fallouts of the reduced fiscal flexibility owing to costs associated with the bailout of large banks and the fall off in government oil revenue.
Additionally, Fitch Ratings also affirmed that the long term foreign and local currency Issuer Default Ratings at BB- and BB respectively. The Agency further affirmed the short-term foreign currency Issuer Default rating (IDR) at B and the Country Ceiling at BB-.
These ratings are indicative of the fact that Nigeria's outlook for 2010 is stable. These ratings also endorsed Nigeria's macroeconomic stability and strong external reserves position. The stable outlook balances Nigeria's financial, economic and political risks on the one hand and its strong external and fiscal balance sheet on the other. Upward pressure on the ratings could however emerge if progress is made in the key areas identified by government: reducing militancy in the Niger Delta, improving non-oil business environment and improving sector governance.
Undoubtedly, Nigeria's macroeconomic environment is bright and the outlook is promising with reasonable macroeconomic stability, especially with the significant progress already made in addressing the challenges in the Niger Delta through the Amnesty Programme, the on-going reintegration and rehabilitation of former militants, and sustained improvement in the price and production of oil. However, improvements in the ratings are expected to depend on the nation's ability to sustain non-oil growth and raising per capita income by addressing infrastructure through investment and reforms.
As part of efforts to transform the economy on sustained basis, the Federal Government is currently undertaking far-reaching economic reforms that are anchored on the 7-Point Agenda and the National Vision 2020 strategic development initiative. As we know, the 7-Point Agenda encompasses the key issues of infrastructure development (power and energy), land reform, security, food security and agriculture, wealth creation and employment, mass transportation, and human capital development (education and health).
The long-term economic development strategy of government is anchored on the Vision 20:2020. The key element of the vision is to triple the present size of the GDP of below USD$300 billion to not less than USD$900 billion, and a per capita income of not less than US$4000 per annum, with a view to placing Nigeria among the top twenty economies by the year 2020.
As part of efforts to achieve this, massive investments are currently being undertaken to revamp infrastructure, agriculture, transport and railway rehabilitation, as well as sustain initiatives for peace and security of lives and properties in the country, in spite of some obvious global and national challenges.
The expected 2010 real GDP growth rate of 6.1 per cent and a target inflation rate of 11.2 per cent remain feasible as the government increases investments in critical infrastructure, implements sectoral reforms, maintains macroeconomic stability and puts in processes that would ensure lasting peace, security and development in the Niger Delta.
The monetary policy stance of the present Administration reflects the tendencies to curb inflation, reduce undue liquidity injection and limit wide fluctuation on the inter-bank rate. Nigeria now has a more strengthened banking system and a more unified foreign exchange rate market. Indeed, external position is robust, characterised by low external debt and reasonable external reserves position.
The outlook for the fiscal year 2010 is predicated on some basic assumptions. These include Oil production of 2.088mb/d, Benchmark oil price of US$57/barrel, Joint Venture cash calls of US$5 billion, average exchange rate of N150 to the US dollar; Target GDP growth rate of 6.1 per cent and Target inflation rate of 11.2 per cent.
The 2010 Budget proposal is based on the above realistic assumptions. Total revenue for the Federal Government Budget was forecast at N2.517 trillion. There was a deliberate expansion in budgeted expenditure over that of previous fiscal years to counter the effect of the credit crunch on the economy as well as to reduce the infrastructure gap.
Accordingly, the aggregate expenditure for 2010 was N4.079 trillion, comprising N180.28 billion for Statutory Transfers, N517.07 billion for Debt Service, N2.011trillion for Recurrent (Non-Debt) Expenditure and N1.371trillion for Capital Expenditure. This represents a 31.5 per cent expansion over the N3.102 trillion appropriated in 2009.
In 2010, the Nigerian economy will operate on a positive and optimistic note, as the Federal Government is establishing special intervention funds to provide credit facilities for commercial farming and support necessary agro-processing linkages to sustain industry However, improvements in the ratings are expected to depend on the nation's ability to sustain non-oil growth and raising per capita income by addressing infrastructure through investment and reforms.
Besides, a review of tariffs and fiscal incentives is being undertaken to boost productivity in the real sector and facilitate rapid economic growth. In recognition of the imperatives of a strong and robust banking sector to accelerate economic recovery, measures have been put in place to restore the viability of the sector, especially with the Asset Management Company initiative to assist in restructuring and further improving the balance sheets of banks, and enhance the flow of credit to the real sector to boost growth and development of the economy.
The installed power generation capacity in Nigeria is 6,000mw while the current available energy output is around 4,000mw due to non-availability of gas. Conservatively, it is estimated that the country will need about 12,000mw. Transmission and distribution networks are in poor state and require complete overhaul. There is also need to improve the road and aviation networks with serviceable rail and marine infrastructure to deliver a truly intermodal and modern transportation system for the country. These critical infrastructure interventions by government will mostly fall under PPP arrangements that will create new regime of mass construction and huge employment opportunities.
The policy direction is clear, government would move away from being an exclusive provider to a facilitator in partnership with the private sector. There should be a standard and transparent methodology in public private partnership (PPP) to attract bidders, stimulate competition, lower prices and reduce government risks.
Thus, the move away from government-owned and government-run institutions remains vital. PPPs will involve the private sector supply of infrastructure assets and services that have traditionally been provided by the government. This will lead to an infusion of private capital/management that can ease fiscal constraints on infrastructural investments and increase efficiency.
The attraction of private participation lies in the fact that it brings capital and efficiency that may be difficult to realise through purely public sector financing. Between 2006 and 2008, the nation spent over N1.2 trillion on subsidies for petroleum products. In 2009 alone, petroleum subsidies accounted for over N600 billion; almost equivalent to the total capital budget of the Federal Government in fiscal year 2009. This diversion of scarce resources is not sustainable in the long-run. Therefore, full deregulation of the oil and gas sector remains very imperative. This will encourage investment in refining and marketing infrastructures. The legal and regulatory framework for the comprehensive reform of this sector is currently being considered by the National Assembly.
Increase in foreign investment inflow is also feasible in 2010 with the deepening and sustained implementation of Public Private Partnership (PPP) framework and other related economic reforms. The private sector is expected to generate more employment and increase wealth creation. The government, on its part, would continue to create the enabling environment through adequate provision of infrastructures and robust investment climate for the private sector to grow and thrive.
We had a number of challenges in implementing the 2009 budget, including issues surrounding the process of budget finalisation, implementation of the Procurement Act and limited capacity in ministries, departments and agencies. Against this background, to ensure improved efficiency, effectiveness and productivity of government's expenditure, the Budget Office, working with the National Planning Commission, Office of the Chief Economic Adviser and the MDG office, have designed a framework to monitor and evaluate the budget performance.
In 2010, there will be extensive focus on monitoring and tracking the impact of resources utilised as part of the ongoing reforms to introduce a comprehensive performance-based budgeting system. Therefore, a monitoring and evaluation system that uses special electronic templates to systematically track and report on the actual outputs and outcomes (capital vote in particular) achieved by MDAs has been put in place. This system will ensure that the focus will shift from resource commitments to MDAs to what was actually delivered by the various MDAs. Also, quarterly budget monitoring and evaluation reports will be published in line with the provisions of the Fiscal Responsibility Act 2007.
To summarise, bearing in mind the challenges we face, we have put in place appropriate measures that would help lay the foundation for enhancing growth and sustainable development. In this regard, the policy priorities for 2010 include:
Distinguished ladies and gentlemen, in 2010 the government would continue to focus on financial reforms, governance, public service reforms, privatisation and strengthening of the business environment for private sector growth.
We will continue to confront boldly and frontally the challenges before us. The government would also continue to approach issues concerning the economy and our shared vision through regular engagement and consultations with key stakeholders, especially the private sector operators and institutional investors like you. We should look beyond the immediate challenges to build a new and strong Nigeria that represents our collective pride which present and future generations of Nigerians would be proud of.
A concerted pursuit of this goal will ensure that we turn our economy around over a relatively short period of time. I am of the strong opinion that Nigeria's economy will witness appreciable growth performance in 2010 with economic fundamentals remaining strong and resilient in view of the current effort of government. Therefore, all hands should be on deck in building the economy of our dream.