The 2016 budget in need of joining up

Proshare

Tuesday, November 10, 2015 09:54AM / FBNQuest Research

The local media report that a two-day budget retreat for ministers-delegate was held last week in Abuja, and that the vice-president, Yemi Osinbajo, presented a paper to the gathering.

Its account of the paper throws up some budget figures, not all of which stand the test of close analysis. Osinbajo, who has a loose coordinating role for the economy, hoped to push capital spending up to N2trn in the 2016 budget, which he compared with N1.3trn in this year’s initial document.

The proposed increase is much more dramatic, given that data in the CBN quarterly reports show a H1 2015 total of just N36bn.

The media report points to a target of 40% for the capital/recurrent expenditure ratio for 2016, which implies a recurrent figure of up to N5trn. This is consistent with the statement of Yahaya Gusau, the new director-general of the budget office, at the 21st Nigerian Economic Summit, that we should expect a rise in recurrent spending in view of the new administration’s proposals for social investment (Good Morning Nigeria, 16 October 2015).

If we add debt service and statutory transfers, we arrive at total FGN spending of about N8trn in 2016. This compares with N4.5trn in the 2015 budget.

Rather than fret about the scale of the deficit, the related revenue generation proposals and any inflationary impact, we should wait for an official document from the budget office or the National Planning Commission. For now, we offer some pieces of a jigsaw in its very early stages.

The paper for the retreat restated that the authorities have opted for zero-based budgeting. At the summit we were urged not to worry about this method, which was likened to the strategic budgets of large companies.

Shortly after the elections, a member of the presidential circle cited internal research estimating the annual budget leakages at N3trn. Clearly the losses would have to be recovered in stages.

In August the Federal Internal Revenue Service proposed a doubling of the standard VAT rate to 10%. This would yield close to N800bn in a full year for distribution but the proposal predated the arrival of a new head of the service.

The export price of Bonny Light in January-September averaged US56/b, just ahead of the 2015 budget assumption of US$53/b.

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