By Omoh Gabriel
Federal government of Nigeria on Friday September 16th indicated its intention to get its 2012 budget ready on time by agreeing on some early outlines. Giving an insight into the budget framework Finance Minister Dr. Ngozi Okonjo said “We are aiming at a realistic GDP growth of 7 to 8 per cent and we are aiming at single-digit inflation. We are also trying to make sure we stay within a 3 per cent fiscal deficit for 2012,” Okonjo-Iweala after a special budget cabinet meeting in Abuja. Okonjo-Iweala said the 2012 budget would be based on the assumption of average oil production of 2.48 million barrels per day and a benchmark price of $75 dollars per barrel.
Ngozi Okonjo-Iweala Former World Bank chief was sworn in last month as Finance Minister and Coordinator of the Economy, pledging to reign in high government spending. But the early budget assumptions show little change from last year.
Nigeria’s current oil output is around 2.5 million bpd and the projections leave little room for manoeuvre should Nigeria suffer outages, common in the past, while global economic uncertainty by no means guarantees oil prices will stay high. “Nigeria is in an especially vulnerable position having run down its previous oil savings. Now, in 2011, with much more elevated levels of spending and demands on government, there isn’t very much to draw on in the event of a shock,” said Razia Khan, Head of Africa Research at Standard Charte Nigeria saves revenues above the benchmark oil prices set in the budget in an Excess Crude Account (ECA) to protect the economy from price crashes. Brent crude oil LCOc1 was trading at over $113 a barrel on Friday.
But the ECA has been drained in recent years and President Goodluck Jonathan recently signed into law a bill to start a Sovereign Wealth Fund (SWF) as a better and more transparent way to manage its oil savings. But the SWF is being blocked by some lawmakers. The assumption figures have been released much earlier in the year than usual, a sign that Okonjo-Iweala is following through on her plans to overhaul the way the budget is formed in Nigeria.
Government offices often spend months without knowing how much money they have for the year because political wrangling causes delays to finalising spending plans. Jonathan only signed the 2011 budget into law at the end of May.
Okonjo-Iweala has said the 2012 budget will be ready for the national assembly next month or in November but negotiations between lawmakers and the government have run on for many months in the recent past.
Cutting recurrent expenditure, which runs at over 70 percent of the budget, is a priority for Okonjo-Iweala and she said Nigeria would increase capital spending gradually by moving from 27 percent of the budget to 37 percent by 2015. Her long-term plan to increase capital expenditure will encourage foreign investors but the 2012 budget deficit target is in line with current spending plans and may be proof of limited short-term ability she has to tighten fiscal policy.
“Ordinarily, the deficit forecast of (under) 3 percent of GDP would be considered relatively benign. But given this structural backdrop to Nigeria, a deficit of 3 percent of GDP – in relative good times given where oil prices and output currently are – may not necessarily be good enough,” Khan said.