Culled—Proshare

January 6, 2017/Agusto & Co

Nigeria’s President Buhari presented the 2017 Budget to a rare joint session of the National Assembly on December 14th, 2016. The Budget speech was also the first major economic speech of the president since Nigeria went into a recession in the second quarter of 2016. The title of 2017 budget—Budget of Recovery and Growth also seemed to capture the mood of the country as the economy reels in its worst recession in 25 years.

According to the Minister of Budget & Planning—Mr. Udoma Udo Udoma, the strategic thrust of the 2017 budget is ensure that Nigeria gets out “of this recession and back on the path of growth” and to achieve this, “government must find the resources to spend on infrastructure, and to spend to reflate the economy”. The central government’s game plan is to “stimulate and attract private sec-tor capital and private sector spending” with government spending.

To achieve this, the government intends to spend about 30.7% (₦2.24 trillion) of aggregate expenditure on Capital Expenditure (CAPEX) compared to ₦1.77 trillion in 2016 (22% of aggregate spending). Despite the big rhetoric on CAPEX, the budget still remains heavy on non-debt recurrent expenditure which is 41% of aggregate spending for 2017 (₦2.980 trillion) compared to ₦2.646 trillion in 2016 (36% of aggregate spending). This implies that personnel and overhead costs are on the rise. Debt service will be 23% of aggregate spending in 2017 (₦1.66 trillion) compared to 20% in 2016 (₦1.475 trillion).

While fiscal policy makers have often touted Nigeria’s benign debt to GDP ratio as a strong positive implying greater borrow-ing capacity, the largely ignored red flag remains the country’s debt to revenue position. Based on these estimates, Nigeria will be spending as much as ₦33 of every ₦100 earned in debt servicing in 2017. This scenario creates a fiscal time bomb that will diffuse in the medium term. At the moment, it also crimps the country’s capacity to splurge on infrastructure and also undertake other investments in social overheads.

On the revenue side, oil revenues are projected to rise by 176% to ₦1.985 trillion in 2017 (₦0.718 tril-lion; 2016) largely on the back of reforms. On the flip side non-oil revenues are projected to shrink by 6% to ₦1.373 trillion in 2017 (₦1.455 trillion; 2016) owing to the failure of reforms, principally in the foreign exchange market, thus affecting corporate performance.