The imminent end-year vacation of the National Assembly and the fact that serious work is yet to commence on the appropriations process for the 2016 budget is creating anxiety in economic circles across the country, Business Hallmark can authoritatively reveal.
Even as the nation waits, fingers are being pointed at different directions as to why the present situation exists.
Among others, analysts and polity watchers attribute the state of affairs to the late composition of the Federal Executive, the absence of a streamlined economic team, the continuing factionalization of the ruling APC and the late submission of the 2015 Supplementary Budget, which has also not been passed.
Added to this is the unimpressive economic performance in the last three quarters which has largely been on decline as key market indicators have shown.
However, a redeeming light in the conundrum is the fact that the government is presently showing interest in spending its way out of the poor economic tide that has partially paralysed corporate activities.
According to the government’s just-released medium term expenditure framework, the size of budget 2016 has been set to N6 trillion as against N4 trillion previously planned for fiscal year 2015.
Along with this, the FG has on several occasions communicated its intention to pump more funds into the infrastructure sector to boost economic performance.
While the need to spend heavily to regain economic balance is seen as a welcome development, stakeholders are saying that the sources for financing both capital and recurrent expenditure look dicey.
Historically, Nigeria often meets most of her revenue from earnings from oil exports while non-oil revenue serves as a lean supporting pillar.
Revenue from crude accounts for more than 95 per cent of the nation’s foreign exchange earnings and more than 70 per cent of gross national income.
The value of earnings over the years also was derived majorly from selling about 2.1 million barrels of oil per day at the international market. However, the poor prices and oil glut that is currently being experienced has pressured the economy from attaining the usual revenues to meet desired government expenditure.
Thus, the nation has continued to witness periods of low income that is barely at par with its fixed recurrent expenditures in the last 18 months.
There have also then been introduced spill over effects from the declining oil revenue which had been the mainstay of national income pool and from which funds had been continually drawn to service the Federal Accounts Allocation to States.
Since the beginning of the year, some states have been having issues meeting their salary obligations in spite of the fact that there has also been very little capital projects execution.
Underscoring the imperative of changing scenarios, Financial Consultants at SCP Professionals LLC counsel; “Planning to spend is the easiest aspect of any budget, revenue side to it is the core area of worry.
As such, if the Federal Government wants to follow an expansionary spending pattern – which is a welcome idea for the situation in the country, someone must tell the citizens where the money would come from”.
Oil experts have said that oil price is not going to resurge soon, and Nigeria’s productive capability has not been improved sufficiently. Besides, the Saudi Arabia position shows that the kingdom is comfortable at the ongoing trend, given concern to emerging economies that depend heavily on earnings from oil.
“Government seems to be tapping into non-oil segment of the economy.
That is fine. But, in terms of value contribution, that may not contribute significantly to the budget size.
Then, we need to talk about borrowing. However, before the nation’s access that option, the authority has to determine how much capacity it has”. SCP Professionals noted.
The nation’s debt profile, though high, still provide some level of capacity to access debt finance. Debt to GDP status is still in line with the fiscal ratio, and a most pleasing outcome and benefit of the recent economic rebasing activity.
Beyond this basic reality however, there is however a nagging concern amongst economic analysts and polity watchers that in the international market, few foreign investors would be willing to go with Nigeria’s bonds because of the inability of the government to very determinedly state and outline her medium-to-long-term economic stance.
In the equity market, foreign portfolio investors have already moved in drills and the market has continued to nosedive as sentiments remain low.
The probability of an interest rate hike by the Federal Reserve in the United States would further aggravate the pressure at the Nigerian Capital Market.
A fixed income analyst told Business Hallmark: “Already, some of the fixed income instruments are under pressure.
There is fear, and the President is yet to come out to tell both local and international market participants his economic stance and the plan for 2016 going forward”.
Stakeholders are also asking the government to state where the funds to finance the budget will come from. They further ask that the FG should articulately state various variables that go with its plans.
SCP Professionals LLC said that; “at what rate is the nation going to borrow if that is an option. We presume that was one of the reasons for the reduction in monetary policy rate from 13 to 11 per cent at the recently concluded Monetary Policy Committees meeting.
But if FED eventually jerk up United State benchmark interest rate, kindly be expecting that the will be massive flight to safety by foreign portfolio investors. Categorically, getting funds locally may not be sufficient”.
The monthly revenue allocation to the three tiers of government has continued to dip further as the Federation Account Allocation Committee (FAAC) shared the sum of N389.936 billion for the month of September, 2015, making a deficit of N47.144 billion when compared to the amount shared in the previous month.
Giving the breakdown, gross statutory revenue of N321.996 billion received for the month of September was lower than the N369.140 billion received in the previous month of August 2015 by N64.444 billion. Also, the gross revenue available from the Value Added Tax (VAT) was N56.399 billion as against N69.945 billion distributed in the preceding month.
The fiscal authority may have it hard to collect corporate tax as productive capacity in the manufacturing sector has also been impacted. The monetary authority’s restrictive FX practice limits business activities far more in 2015. That means, more corporate tax defaulters as well as lower pay-out may be well experienced by the Federal Inland Revenue. Expectedly, corporate profit tax for 2015 will mature for payment in 2016, which invariably implies that taxation may contribute less than is presently envisaged. Clearly, these are not easy times.
BY JULIUS ALAGBE