Africa’s largest economy and its most populous nation Nigeria is feeling the full brunt of a falling oil price. The value of the commodity has
fallen by more than 65% since mid 2014 from $112 per barrel to less than $39. Such a decline is a significant negative shock for a country that typically derives
two thirds of its government revenues from oil. AMADU SY,
the Director, Africa Growth Initiative and a Senior Fellow,
Global Economy &
Development, Africa Growth Imnitiative writes on how
Nigeria will react to the shock.
Buhari’s 2016 Budget
proposal charts the course for Nigeria in the next three years
to not only manage the current external economic turbulence but also set the stage for strong, sustainable, and inclusive growth in the medium-term.
WHAT ARE THE KEY OBJECTIVES OF THe 2016 BUdGET?
By ramping up infrastructure spending, reducing existing inefficiencies public expenditures, raising non-oil revenues, and fighting
corruption, Buhari’s 2016. Budget seeks to stimulate economic growth, increase
competitiveness, and improve human development.
There is clear objective to
diversifying the economy and using the expected economic gains to increase the welfare
of Nigerians, including by reducing youth unemployment and extreme poverty. (For a great visual
breakdown of the budget, see
HOW DOES THE GOVERNMENT PLAN TO MEET THEM?
Spending infrastructure and human development to stimulate the economy: The
government intends to increase capital expenditure as a share of total budget to more than 30% from
Infrastructure spending is expected to revive economic growth and help
create jobs in a number of sectors such as agriculture
and mining. The government intends to also spend resources in education, health, and security to foster human development.
Tax rates for smaller businesses will be
lowered, and priority sectors such as agriculture and solid
minerals will be subsidised.
On the education front, unemployed graduate teachers will be recruited,
trained, and deployed in public schools. In partnership with state and local
government areas, financial training and loans will be provided to market women, traders, and artisans through their cooperative societies.
In partnership with development partners, conditional cash transfer programs are
envisioned for the poorest and most vulnerable segments
of the population.
A LEAN AND COST EFFECTIVE GOVERNMENT: Spending more is not the only way to have an impact, and the budget rightly emphasizes the need for a “lean and cost effective government” by targeting
efficiency losses, associated with the current budget and
It will enforce the
Fiscal Responsibility Act requirement for Ministries, Departments and Agencies (MDAs) to present their budgets in advance and remit
their operation surpluses. In a
departure from the previous budgeting approach under
which only incremental
expenditures have to be justified, a zero-based budgeting approach will also
The new Efficiency Unit will seek to
reduce inefficiencies in spending, and the
government will keep a close eye on personnel and pension costs, including through a
new continuous audit process and the extension of the
integrated personnel payroll information system.
RAISING NON-OIL REVENUES:
The government hopes to increase
non-oil tax revenues by 20% in 2016 by expanding tax
collection. Beyond improving domestic revenue mobilisation, the hope is that the expansionary fiscal stance will help generate growth in
the non-oil economy, which then can be taxed.
Although the government will not
increase the value added tax rate, one of the lowest in the
world it plans to free up resources by removing fuel subsidies, a politically
Buhari has clearly indicated his resolve to fight corruption
and has replaced the heads of revenue generating agencies,
including at the Nigerian National Petroleum Corporation (NNPC). He also plans to recover
misappropriated funds to help
supplement fiscal revenues.
The budget also plans for the implementation of a Treasury Single Account (TSA) to
increase transparency in and improve the remittance of
collections of revenues.
WHAT ARE THE RISKS TO ACHIEVING THE ONJECTIVES?
The new budget is consistent with the “new normal” in
international oil markets and assumes a lower benchmark
oil price of $38 per barrel down from $58 in the 2005
budget (together with reduced production). As all planned expenditures
(N6.08 trillion, or about $34.5 billion using the official exchange rate) will not be covered by expected revenues (N3.86 trillion), the budget forecasts a federal fiscal deficit of N2.22 trillion in 2016. This is equivalent to 2.2% of the Gross Domestic Product (GDP) and is twice the 2015 figure of 1.1%.