Govt’s silence heightens confusion over funding of 2016 N7tn budget

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AS the nation awaits the presentation of the N7 trillion 2016 budget proposal by present Muhammadu Buhari to the National Assembly, on Tuesday, a veil of confusion seems to be surrounding the funding of what analysts regard as ambitious budget for the fiscal year.
The confusion stems from the lack of clarity on specific sources of funding for the huge expenditure outlay by Kemi Adeosun, finance minister.
Analysts say the silence to address the issue by Adeosun even as the price of oil continues to fall, thereby putting the $38 per barrel bench mark in jeopardy.
Twcently, Adeosun, said raising non-oil revenue was her top priority as the slump in oil price continues to affect Africa’s biggest crude exporter’s ability to fund budget.
This is only the first but yet unclear statement from government on how it plans to raise money to meet the budget for next year, in the face of sharp drops in revenues is causing anxiety in the industry.
Oil prices turned away from slight gains last week as the risk premium following the Paris attacks and the French airstrikes in Syria faded and traders began to focus on the global oversupply in petroleum products again.
Nigerian shares have fallen to a two-and-half-month low, as the poor outlook for Africa’s biggest economy drags down the relatively liquid stocks in the banking and consumer goods sectors.
The Federal Government is proposing a budget spend of N7trillion for 2016, up from N4.4 trillion this year.
It proposed capital expenditure of N2 trillion next year, up from N1.3 trillion in 2015, but did not say how it would be funded.
President Buhari’s comments shortly after taking office in May, that treasury coffers were “virtually empty” further heightens Nigerians skepticism on the possibility of funding the bloated budget.
“Osinbajo, who has a loose coordinating role for the economy hoped to push capital spending up to N2trn in the 2016 budget, which he compared with N1.3trn in this year’s initial document. The proposed increase is much more dramatic, given that data in the CBN quarterly reports show a first-half (H1) 2015 total of just N36bn” according to analysts at FBNQuest in their November 10 note.
A public commentator who simply identified himself as Saloskani said, “This can only come with huge borrowing because we can’t generate it. If so, they (Federal Government) should tell us how they intend to pay back the loan. I hope this is not another SAP in the making”.
“A budget is a projection… Increasing to N7 trillion does not mean they have the revenue yet… They have not even mentioned how or where any of the money is coming from… Especially since they claim the previous administration left an ’empty treasury’ and we know the price of oil which they may be banking on is dwindling. It is just a proposal to double the size of a budget,” said another public critic who identified himself as Jay GeeX.
“If we are going to spend more than 100 percent of what we spent in the past year it means that we are going to look at how to fund it. The Federal Government will have to resort to other funding options to finance this budget”. Such options include among others: local debt (Treasury Bills, FGN Bonds) or International Debt (euro bond, or international borrowing from the Paris Club”, Bismark Rewane, Managing Director, Financial Derivatives Company Limited, said recently, at a business gathering.
Rewane said: “Fiscal expenditure will remain dominated by recurrent spending, despite efforts to boost capital expenses. A clearly economic direction and commitment to ending insurgency will boost investment inflow into Nigeria”.
According to the Federal Government, the 2016 budget process will be zero-based, a method of budgeting by which all expenses must be justified for each new budget year.”
JP Morgan slashed its crude oil price forecasts for this year and next, citing increased production, and said there was a possibility of prices touching new lows this year, due to peak seasonal refinery maintenance in October.
The bank lowered its average 2015 forecast for Brent crude and US oil by $16 per barrel and by $19 for 2016.
It forecast Brent crude prices at $54.50 and $52.50 per barrel in 2015 and 2016 respectively, while lowering its WTI outlook to $48.50 per barrel.
In a recent note to investors, the Gregory Kronsten led team of research analysts at FBNQuest said, “The new administration is said to have a target of $2bn in external financing on a concessional basis in 2016, compared with $1.3bn this year. This would likely include external parties which feature in the DMO’s federal government debt data such as the World Bank (loans of $6.09bn at end-June 2015) and China’s Exim Bank ($1.39bn).”
“The FGN is expected to seek funding from other regular partners which do not appear in the data because, we assume, their support is provided wholly on a grant basis, such as the EU (other than the European Development Fund) and the UK’s Department for International Development. The DMO’s external debt stock series shows that only the Eurobonds ($1.50bn) were contracted on a market basis in a total of US$10.32bn at end-June,” research analysts at FBNQuest further said.
In their recent note, analysts at FBNQuest said the meeting could profitably focus on the FIRS, the largest agency which collected N2.26trn of total gross federally collectible non-oil revenue of N3.40trn last year.
It has met all its annual collection targets since year 2000 other than 2006.
They added: “This tells us that the targets are insufficiently tough. In January-September 2015 it collected 92% of its N3.19trn target. The non-oil share of its collections in Q1 was 51%, rising to 67% in Q3. “

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