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Some Fine Details in the Budget Speech

Proshare

Wednesday, December 21, 2016 9:27 AM / FBNQuest Research

The president’s 2017 budget speech to both houses of the National Assembly is an ambitious statement of intent.

We learn that in the first nine months of this year aggregate FGN revenue and expenditure amounted to N2.17trn and N3.58trn respectively, and that the proposed budget projects corresponding totals of N4.94trn and N7.30trn. The speech shares the “paradox that to diversify from oil we need oil revenues”.

This budget, unlike this year’s, targets higher revenues from oil than from non-oil sources.

This, we feel, is an official acknowledgment that the commendable aim of transforming the culture and mechanisms of paying tax in Nigeria can only be delivered in stages.

The FGN had earlier trimmed its expectations of independent revenue collection from N1.5trn in the 2016 budget, of which just N272bn had been raised by the end of October, to N811bn next year. These are the operating surpluses of government agencies. (They are required by law to surrender 80% of such surpluses to the consolidated revenue fund.)

The capital budget has been set at 30.7% of the total. How the FGN must look a little enviously at the mix in most state budgets, although not at their dependence on the monthly FAAC payout. Kaduna, for example, has set a capital to recurrent ratio of 69 to 31 in its 2017 budget..

The federal budget does not provide for cash call payments to the NNPC’s oil joint-venture partners. These were earlier shown at more than N1trn per year through to 2018.  The cost recovery mechanism is to replace cash calls.

The president’s speech noted additional overdue debts of N2trn to contractors and other private-sector parties (including oil marketers and exporters). This picked up on the plans of the federal finance minister, Kemi Adeosun, to issue 10-year promissory notes in settlement.  These obligations represent 2.3% of 2015 GDP.

The speech goes some way towards dispelling the notion that the FGN has been inert or inactive the past year.

It notes, inter alia, the agreement with Morocco on reviving abandoned fertiliser plants; provisions in the new budget to clear overdue electricity bills; the completion of the Kaduna-Abuja railway; and annual cost savings of N180bn from the elimination of payments to ghost workers, reduced government travel budgets and the conversion of confiscated properties for government office space.

We have already commented upon the assumptions underpinning the proposed budget (Good Morning Nigeria, 15 December 2016).
 

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