The rate at which the Nigerian government plans to convert its dollar earnings from oil in 2013 will be N160 to the dollar. This is one of the highlights stated by the Minister of Finance and Coordinating Minister of the Economy Dr. Ngozi Okonjo Iweala in her budget break down. This implies that the CBN will adjust the naira exchange from the current N155 to the dollar to N160. Giving the break down of the 2013 budget the Minister of Finance gave the indication of the plan of government to allow the exchange rate of the naira to dip. The government is envisaging that the production of 2.5 million barrel per day on which the 2013 budget is predicated may not be realized due to continued oil theft and pipe line vandalisation that is currently hindering production and export of Nigeria crude.
Only last week Shell declared a force majure on oil export as a result of pipeline vandalisation. The way to make up is to adjust the exchange rate of the naira.
What amendment seeks?
Dr. Okonjo-Iweala disclosed that the executive was preparing an Amendment Bill on the 2013 Appropriation which would be forwarded to the legislature, shortly, with a view to addressing three main areas which she described as “challenges” for the budget.
They included reductions in overhead costs, re-allocation of capital expenditure and the erosion of the SURE-P funding.
She said ”At the beginning of the year, when we reviewed the National Assembly’s version, there were several challenges which had to be revisited. There were three main challenging areas, namely: reductions in the wage bill, major capital expenditures which had been re-allocated, and reallocations of the budget for the SURE-P program.
“We successfully resolved these changes in the past two weeks, and Mr. President will send a proposal to the National Assembly for amendment of the 2013 Budget. The minister also disclosed that the issue of the supervision of the N100 billion Constituency Projects had been resolved as they have been brought under the supervision of the Minister for Special Duties. “Let me also add here that Mr. President has assigned the Minister of Special Duties to assist in overseeing the implementation of the N100 billion constituency projects across the country”, she said.
The break down of the 2013 budget showed that security took the lion share as the federal government has allocated the single largest budgetary provision of N950 billion to security, out of the total aggregate expenditure of N4.987 trillion in the 2013 fiscal year.
The total expenditure out lay for 2013 represented a 6.2 per cent increase over the 2012 budget of N4.697 trillion and about N600 billion above the executive proposal of N4.92 trillion presented to the National Assembly by President Goodluck Jonathan on October 10, 2012.
According Dr. Ngozi Okonjo Iweala who gave the breakdown of the budget at a briefing in Abuja, yesterday, Non-debt recurrent expenditure took, N2.38 trillion; statutory transfers, N387.97 billion, debt services N591.76 billion and N 1. 62 trillion earmarked for capital expenditure, representing 32.5 of aggregate spending.
Major highlights of the 2013 budget included: oil production of 2.53 million barrels per day compared to 2.48 million barrels per day in 2012; benchmark oil price of $79 per barrel, up from $72 per barrel in 2012 and the $75 per barrel proposed by the executive; a projected real GDP (Gross Domestic Product) growth rate of 6.5 per cent and an average Exchange Rate of N160/$.
With revenue projections put at N4.1 trillion for the year, Dr. Okonjo-Iweala said that the federal government would run a budget deficit of about 1.85 per cent of the GDP, down from 2012 figure of 2.85 per cent and 2.17 per cent initially proposed by the executive.
According to her, “This is well within the threshold stipulated in the Fiscal Responsibility Act , 2007 and clearly highlights our commitment to fiscal prudence.”
The minister said that the federal government remained focused on critical infrastructure and the creation of an environment necessary for private sector operators to play leading roles in the nation’s socio-economic transformation efforts.
Sectoral allocations
Detailed breakdown of the allocations according to Dr. Okonjo-Iweala was: “Critical Infrastructure (including Power, Works, Transport, Aviation, Gas pipelines, and Federal Capital Territory) – N497 billion; Human Capital Development(i.e. Education and Health) – N705 billion; and Agriculture/Water Resources – N175 billion. We also allocated over N950 billion for national security purposes, comprised of: N320 billion for the Police, N364 billion for the Armed Forces, N115 billion for the Office of the NSA, and N154 billion for the Ministry of the Interior.
“For 2013, the SURE-P program has a projected allocation of N180 billion, augmented by the 2012 unspent balances of N93.5 billion. This amount will be used to make further progress in the provision of social safety net schemes, maternal and child healthcare, youth development and vocational training for Nigerians”.
In spite of the deliberate strategy at keeping debts low, the minister disclosed that the need for more infrastructure investment would drive the nation into floating $1 billion Eurobond, as well as, Nigeria Diaspora Bond within the year. According to her, the Nigeria Diaspora Bond would give Nigerians abroad the opportunity to invest their savings in their home country and therefore contribute to the economic development efforts back home.
Her words, “we recognize that Nigeria’s infrastructure deficit remains one of the binding constraints to growth in the economy. Therefore, our strategy is to prioritize infrastructure investments in the budget, and also to leverage additional external financing for infrastructure investments in the country.
“For example, Budget 2013 has some important infrastructure projects in the transportation sector, such as the second Niger Bridge. We plan to augment our domestic resources with a proposed $1 billion EuroBond as well as a Nigeria Diaspora Bond which will harness savings from Nigerians abroad.
“These additional financial resources will be invested in various infrastructure projects such as building the country’s gas to power infrastructure. We plan to use PPPs aggressively, working with the Sovereign Wealth Fund which will attract co-investors from home and abroad such as pension’s funds, institutional investors and so on”.
$79 pb Benchmark
On the oil benchmark, the minister said, “we have stressed the need to build a buffer, we have said it all but at the end of the day, we have a collaborating process and in that process we thought that, well, the biggest challenges we face in the budget have now appeared and the National Assembly is now willing to constructively work on that.
“So let us not, for the sake of both moving this budget and Nigeria forward, decided to live with this benchmark and then next year, hopefully, we will have another more collaborative way of setting a proper benchmark that will work for all Nigerians. So we have accepted it.
“We will try to mitigate the risks by trying to see how we can strengthen our buffers- in collaboration with the Central Bank and then next year things will be better. My own suggestion is that maybe we need to move to the module used by Chile which has an independent body that determines the benchmark of copper which is their main commodity.
“When you have an independent group, not the executive, not the parliament certainly in a professional way, we are not the only commodity dependent economy in the world there are so many, and people have evolved different ways of dealing with this benchmark, you remember 8 years ago we didn’t even have a benchmark, it didn’t even exist, this scrutiny that we are all now focusing on, people have forgotten, we were all just going like a yoyo , our economy was moving up one year and crashing the next and we showed you that was why our economy was growing by 2.4 per cent because we couldn’t control the volatility in our economy in the commodity market.
“Today people are so complacent now that’s what I keep saying when we make a success of something in Nigeria people rubbish it and then they move on to the one you have not done. It is barely 8 years since we began to enjoy the stability, forty something years of our history we were not doing it so I think Nigeria should really be a bit fair, now we have brought the stability and people are wondering, ‘what is macro, we cant eat that’ off course you cannot but if you don’t have it, you cant even begin to think of what to eat. Now we can focus on what we need to eat and it is government job to work on that out rightly, so this thing benchmark, maybe we need to move to the next level of having an independent way of checking the benchmark whatever they bring all of us will accept it and work with it.
“In Ghana they have been very wise. They have legislated the way it is set. It is not a political issue, it is set-the law and they move with it so those are some of the things we need to look at and I believe we are having a very constructive discussion with the National Assembly on this issue and my hope and prayer is that we are able to move to that level so that benchmarking will no longer be an issue of discussion”.
Building buffers
According to the minister, the administration has commenced the implementation of an aggressive buffer building strategy, to cushion any future shock from the international oil market. Her words, “government is also building up the necessary savings to cushion the economy against a possible global recession or collapse of oil prices. For instance, the balance in the excess crude account has increased from $4.22 billion in August 2011 to about $9 billion at the end of 2012. In addition, we have launched Nigeria’s Sovereign Wealth Fund, with an initial capitalization of $1 billion, and we hope to increase this Fund further in the future. Our foreign reserves have also grown steadily, and now stand at $47.38 billion as at the end of February 2013 – the highest level for almost 3 years”.
In his presentation, the Director-General of the Budget Office, Dr. Bright Okogu said that the administration would work towards greater monitoring of budget implementation in the year, with a view to ensuring value-for-money on all projects.
He added that the federal government was also concerned about non-full remittance of revenue by government agencies.
“The MDAs must realize that the revenue they generate doesn’t belong to the Chief Executive Officer and his staff but the federal government and Nigerians” , he said.
Dr. Okogu also said that crude oil theft was a reason for massive revenue loss to the nation as vandals and illegal oil bunkering continued to take tolls on the nation’s revenue, as well as, the environment owing to pipeline vandalism-related spillage.
