2018 budget, weak, ineffective to stimulate economic growth – Rewane

Nigeria’s Budget of consolidation considered as consistent with the medium-term expenditure framework and the economy’s recovery and growth plan has been termed as a weak and ineffective tool to stimulate desired growth plan has been termed as a weak and ineffective tool to stimulate desired growth.

Bismarck Rewane CEO, Financial Derivatives Company Ltd who made this remark in a report on the budget released at the weekend, however, noted that the budget is useful as a revenue and expenditure estimate and will yield average impact when used as a tool of economic management.

The FDC boss noted that though the budget was not politically motivated, it was neither economically motivated since stimulus package was weak, adding that high unemployment, low capital formation and suboptimal growth would persist as expenditure levels remain flat.

He said the budget was more of a prudent one with a spend-as-you-earn approach, coupled with slow and steady growth below population rate and declining income per capita.

While Nigeria’s budget has grown in nominal size over the past years, specifically from N4.5 trillion in 2015 to N9.1 trillion in 2018, there has been no real growth as the it shrank in size when analyzed in dollar terms.

The budget which grew in dollar terms from $27.3 billion in 2015 to N31.0 billion in 2016 dropped 21.6 percent to $24.3 billion in 2017 and settled at $25.3 billion in 2018, a figure significantly lower than the peak of the four-year trend.

According to Rewane, the budget when compared to those of other African countries, is small coming behind South Africa’s and Ethiopia’s who have a significantly lesser population and a lower nominal GDP than Nigeria.

South Africa’s ranked first with a budget size pegged at N110.44 billion and a growth rate of 0.8 percent, Angola is next with $45.69 billion budget and a growth rate of 8.1 percent while Nigeria comes third at $25.3 billion with a growth rate of 0.8 percent.

Ghana and Ethiopia come 4th and 5th with a budget size of $13.1 billion and $12.7 billion and a growth rate of 10.2 and 8.1 percent respectively.

Despite the relative small size of the budget, President Muhammadu Buhari did expressed reservations concerning the 6 percent upward review of the 2018 budget to N9.1 trillion from N8.6 trillion by the National Assembly.

The late approval of the budget as well as addition lines of expenditure is also seen constituting strains on the implementation of previously budgeted projects.

About 4,700 projects submitted for legislative consideration saw cuts amounting to N347.0 billion while 6,403 projects amounting to N578.0 billion were introduced by the National Assembly.

The President has since announced its intention to seek a remedy to some of the issues raised as a result of the cut projects via a supplementary budget, which will likely be presented around August/ September.

The FDC however sees some intended and unintended consequences of this supplementary budget, noting that the minimum wage review of N56,000, as well as subsidies aggregate not discussed in the budget, would be the chief intended consequences of the supplementary budget, while spending overdrive (funds meant for 12 months would now be spent in 6 months) and leakages would be unintended consequences.

Rewane also projects inflation rate to be flat in the year and start increasing again in the run-up to the elections.

“The naira will be stable but come under pressure, unemployment and underemployment will increase, growth will be positive but flat,” the FDC boss said.

Giving specifics on the projected increase in food prices, Rewane noted that a 50kg bag of beans will increase from N27,000 to N30,000.

“Your price basket will change, Egusi will decline to N5,000, Flour will increase by 10 percent- 15 percent per bag, A 50kg bag of Rice will increase from N16,500 to N17,000, Garri (50kg) will fall from N7,000 to N6,500 and Tomatoes will decline from N15,000 to N13,000,” he said.