Experts Welcome FG’s Expansionary 2017 Budget

Obinna Chima

Some financial market analysts have expressed satisfaction with the expansionary 2017 Appropriation Bill that was presented to members of the National Assembly on Wednesday.

According to them, if properly implemented, the proposed budget estimates for next year, could help lift the country out its present economic situation.

President Muhammadu Buhari on Wednesday presented a proposed aggregate expenditure of N7.298 trillion for the 2017 fiscal year to the National Assembly.

Part of the proposed budget estimates showed aggregate expenditure of N7.298 trillion will comprise: statutory transfers of N419.02 billion; debt service of N1.66 trillion; sinking fund of N177.46 billion to retire certain maturing bonds; non-debt recurrent expenditure of N2.98trillion; and capital expenditure of N2.24 trillion (including capital in Statutory Transfers).

A significant portion of the recurrent expenditure was provisioned for the payment of salaries and overheads in institutions that provide critical public services. The budgeted amounts for these items included N482.37 billion for the Ministry of Interior; N398.01 billion for Ministry of Education; N325.87 billion for Ministry of Defence; and N252.87 billion for Ministry of Health.

The 2017 Appropriation Bill was based on a benchmark crude oil price of US$42.5 per barrel; an oil production estimate of 2.2 million barrels per day; and an average exchange rate of N305 to the US dollar. Based on these assumptions, aggregate revenue available to fund the federal budget is N4.94 trillion. This was 28 per cent higher than 2016 full year projections. Oil is projected to contribute N1.985 trillion of this amount. Similarly, non-oil revenues, largely comprising Companies Income Tax, Value Added Tax, Customs and Excise duties, and Federation Account levies were estimated to contribute N1.373 trillion.

The CEO, Financial Derivatives Company Limited, Bismarck Rewane, said the budget estimates were a “step in the right direction.”
However, Rewane pointed out that “in terms of its quantity, you need more than a 20 per cent increase in expenditure to move the economy.”

He explained further: “ In other words, if you use the exchange rate differentials, the level of depreciation between last year and this year is about 40 per cent, from N199 to N305, while you increase your expenditure to 20 per cent. So, you need to do at least a 35 per cent increase in expenditure to bring it to bring it to zero. So, you need at least a 50 per cent increase in expenditure between 2016 and 2017 to have an impact. So, anything less than that is actually a contraction in expenditure.”

But in his reaction, the Director General of the Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, welcomed the policy pronouncements components of the budget proposal. These he listed to include the comment by the president that there would be more coherence between fiscal and monetary policy, the decision to continue the Joint Venture Cash Calls as a mode of financing the upstream oil and gas sector, the restoration of the Export Expansion Grant, the restatement of the federal government’s commitment to public-private partnership, as well as the preparedness by the government to settle the debt it owed the power firms.
Continuing, the LCCI boss also said the assumption of oil price of $42 per barrel was okay, adding that the assumption of oil output of 2.2 million barrels per day “looks a bit optimistic given the challenges of the Niger Delta.”

“But we are hoping that because of thhe upward review in the amnesty budget, maybe it will have some positive impact on the peace in the Niger Delta. The exchange rate of N305 to the dollar is not the market rate, but I think it is something that we can live with for purpose of budgeting. The provision for debt service is one the high side. This shows that the problem of debt service would continue to be a burden to the economy,” Yusuf added in a telephone interview with THISDAY.

Also commenting on the assumption of crude oil benchmark, the CEO of Cowry Assets Management Limited, Johnson Chukwu said: “This is a very optimistic budget. Crude oil is doing about $55 per barrel today and even in worst case scenario and I believe if OPEC sticks to its decision to cut production and if we able to address our local production, I believe that crude oil price should range around $50 per barrel. So, the $42 per barrel assumption to me is realistic. But to me it would be an exceptional occurrence if we meet the volume of production. This is because even if you stop the crisis in the Niger Delta, you are still going to take some time tk restore those oil facilities to their production level.”

On his part, the Chief Consultant Biodun Adedipe Associate Limited, Dr. Biodun Adedipe, described the proposed budget for 2017 as “good direction in terms of volume, good direction in terms of structure and of course, good direction in terms of emphasis. So, the important thing is to encourage the government to continue in that direction in terms of sectors to focus on, and then putting emphasis on capital expenditure.