Culled—Proshare
4/1/2018/PwC
Economic Context
Five global themes to consider in 2018
Nigeria is the largest economy in Africa. However, growth has fallen sharply since 2010, with the economy falling into recession in 2016 due to an oil-induced crisis
With a quickly-expanding population, technology adoption and rising investment, by 2050 the nation is expected to become the first African nation to become a top 15 global economy
A third of the economy is based on primary industries of agriculture, mining and quarrying (which includes the large oil sector)
Nigeria’s economy has returned to positive growth in 2017, but the non-oil sector performance remains weak
Fiscal Accounts
Key assumptions of the 2018 budget
2018 budget revenue proposals – Where the money is coming from?
2018 budget expenditure proposals – Where the money going to?
Capital expenditure in the proposed 2017 budget
The oil sector remains the main source of export earnings and government revenues though its contribution to GDP has declined
However, the low oil price has placed significant pressure on the currency and government earnings
Oil prices are not the only concern – production failures, spillages and high bunkering and theft rates affected volumes. However, volumes have increased recently due to lower incidence of attacks on facilities.
The tax base is much lower than other economies at a similar level of development. It is also poorly diversified; half of government revenue is dependent on oil.
The government also has a limited ability to increase revenues through taxes on oil companies
Overall, only a limited portion of the oil revenues may filter through to support the real economy
The biggest portion of federal government expenditure is the public sector payroll, accounting for 1.8% of overall GDP – equivalent to the total size of the livestock industry. There is limited scope to reduce government expenditure without cutting employment or wage levels.
Large levels of public expenditure have opened up a fiscal deficit over the last few years. The deficit is projected to remain elevated due to weak revenue accretion
Despite this, outstanding government debt is low compared to countries within the region and those at similar levels of development
Of the NGN20.3trillion of outstanding public debt, the majority is denominated in domestic currency. However, the share of external debt is expected to increase, supported by the government’s refinancing plan.
Nigeria’s economic recovery: Defining the evolution of economic growth
Lower oil prices, disruptions to crude oil production, and an unstable FX regime are the major near term risks.
