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The 2010 budget tagged: ‘A stimulus budget’, is meant to accelerate economic recovery and also serve as principal policy instrument to transform the present administration’s Seven-Point Agenda and Nigeria’s Vision 20:2020 into tangible and enduring realities.A critical look at government’s priorities for the budget showed a shift in the focus of implementation from resource commitment to monitoring of actual deliverables expected from ministries, departments and agencies (MDAs); linked key projects in the budget with deliverables; associated with the administration’s Seven-Point Agenda; ensuring of macroeconomic stability and fiscal discipline, reduced inflation and interest rates; improved efficiency in government expenditure; focus on completing essential ongoing projects; suspension of investment in non-priority capital outlays, and reduction of non-essential expenditure.
The key macro-economic assumptions and parameters upon which the budget is predicated include $67 per barrel benchmark for crude oil, crude oil production of 2.350 million barrels per day; joint venture cash calls of $7 billion; gross domestic product at 5.47 per cent, inflation rate, 11.2 per cent, and an exchange rate of N150 to one dollar. Also, debt service was put at N497 billion, non-debt recurrent, N2.077 trillion; capital expenditure, N1.853 trillion; and the budget deficit, N1.521 trillion.
The headline inflation rate, as measured by the year-on-year increase in the all item consumer price index, was 12.3 per cent in January 2010, up from 12.0 per cent in December 2009, but lower than the 12.4 per cent recorded in November 2009 and the 14.0 per cent recorded in January 2009. Food inflation, which hovered between 13.5 and 13.6 per cent in the fourth quarter of 2009, rose to 14.0 per cent in the January 2010. Inflation outlook for 2010 remains uncertain, due to a combination of both domestic and international economic developments namely, the planned full deregulation of petroleum product prices, the expansionary fiscal outlay for 2010, and the rising international commodity prices.
To actualise these objectives, the CBN, in its last Monetary Policy Committee (MPC) meeting in Abuja, left monetary policy rate at 6.0 per cent;
Standing lending facility interest rate stood at 8.00 per cent, while the standing deposit facility rate was lowered from 2.0 per cent to 1.0 per cent; and granted liquidity status to bonds issued by state governments, subject to their meeting the specified eligibility criteria.
Only recently, the Director-General, Debt Management Board (DMO), Dr. Abraham Nwankwo, put the current public debt portfolio owed by Nigeria at N3.8 trillion, representing a debt gross domestic product (GDP) ratio of 13.8 percent as at December last year. However, he said when compared with the GDP, there was no cause for alarm in relation to other developing countries.
He assured that he was monitoring the debt profile in all the sectors.
On budget deficit financing, he explained that the DMO needed about N867 billion to fund this year’s budget deficit as provided for in the appropriation Act, which had been jerked up to N1.521 trillion in the passed budget. The DMO has, therefore, concluded plans to raise $500 million in the international bond market to finance the budget deficit.
It will be recalled that capital flight was largely responsible for the crash in the nation’s capital market, which had resonated in the banking sector via margin loans. However, with the current reforms in the sector, particularly the proposed Asset Management Company (AMC) targeted at soaking the bad debts in the sector, foreign investors are beginning to show interest in Nigerian financial sector and by extension, the economy.
Overall, the net outflow of foreign exchange, which moderated significantly from $931.93 million to $138.37 million in the third and fourth quarters of 2009, turned to a net inflow of $0.10 billion in January 2010.
A finance expert, Mr. Lucky O. Aiyedatiwa, does not see volatility in the foreign exchange market in the nearest future since CBN’s intervention.
According to him, N150/$ as provided in the budget was realisable, stating that with the current reforms in the banking sector, there would be stability in the sector and inflation rate at 11.2 per cent was achievable.
According to the former President, Association of National Accountants of Nigeria (ANAN), Dr. Samuel Nzekwe, to achieve a stimulated economy, the banking sector must first be stimulated to lend to the real sector, adding that, the stability in the sector would have positive effects on the macroeconomic stability. He, however, warned that from all indications, it appeared the country was gradually creeping back to debt trap.
He observed that the economic developments globally also supported the benchmark oil price of $67/barrel but added that the Federal Government should implement the amnesty programme in the Niger Delta to realise the estimated daily crude oil production forecast.
In a nutshell, the apex bank and its agencies are working round the clock to ensure the budget meet its forecasts. According to its recent report, it observed the continuing rebound in commodity prices, particularly crude oil prices, which is helping to support growth in commodity producing regions, stressing however, that the inflation risk of the rebound in energy prices appears to be mitigated by the subsisting low levels of capacity utilisation, weak private demand and well-anchored inflation expectations.
The apex bank also observed that, though financial markets had recovered remarkably faster than expected, bank lending was likely to remain sluggish given the need to rebuild capital, maintain liquidity and the possibility of further credit write downs, mostly related to non-performing exposures to commercial real estates and stock markets.
Statistics from the National Bureau of Statistics (NBS) indicates that real Gross Domestic Product (GDP) will grow by 6.68 per cent in the first quarter of 2010, down from 8.23 per cent in the fourth quarter of 2009, but up from the 4.50 per cent recorded in the first quarter of 2009.
Overall GDP growth for 2010 was projected at 7.53 per cent, which is higher than the 6.90 per cent recorded in 2009. This is a clear indication that the target in the budget is realisable.Share