Nigeria expects its budget deficit to widen to 6.1 percent of GDP this year, more than double the level set under a fiscal responsibility act three years ago, as government spending rises ahead of elections next April.
Revenue shortfalls from the oil and gas sector, unexpected wage increases, and election costs will contribute to the widening deficit, Finance Minister Olusegun Aganga said in an annual briefing on sub-Saharan Africa’s second biggest economy.
Government revenue is projected at 3.18 trillion naira ($20 billion) with expenditure expected to be 5.16 trillion, Aganga said in the review, released on Monday.
Analysts have expressed concern about the state of public finances in Africa’s most populous nation as presidential, parliamentary and state governorship elections approach.
Recurring expenditure accounts for more than half of the country’s overall spending, meaning it is paying more to keep government running than it is investing in badly-needed infrastructure and other capital projects.
Government borrowing has risen sharply, increasing by more than 50 percent since the start of the year, compared to private sector credit growth of just three percent over the same period.
The government has said it will also issue bonds to pay workers at former state telecoms company Nitel and to fund part of the electoral commission’s budget, further increasing domestic debt.
Still, the head of the debt management office has pointed to a debt-to-GDP ratio of 16 percent that is expected to remain stable next year, depending on the rate of economic growth, suggesting Nigeria could easily raise more debt if needed.
But authorities have also spent billions of dollars of oil savings since the start of the year alone, and seen foreign exchange reserves fall 20 percent year on year by mid-November to $34 billion.
Ratings agency Fitch last month cited those factors when it cut its sovereign credit outlook for Nigeria to negative from stable.
The excess crude account (ECA), into which Nigeria saves revenues above a benchmark oil price, has dwindled from $20 billion at the start of late President Umaru Yar’Adua’s term in 2007, to around $4.4 billion when President Goodluck Jonathan took over in May, and less than $1 billion now.
The government says the ECA has served its purpose as an account to be used to protect Nigeria against a fall in commodities prices or a global downturn.
But analysts say the reduction is alarmingly sharp during a period of relatively high oil prices — Thursday’s price of $85 a barrel is a 40 percent premium on the $60 assumption in the 2010 budget — and a recovery in Nigerian oil production. Aganga said last week Nigeria’s foreign reserves were well below where they ought to be and that a plan was in place to restore them.
He has also said spending for next year will be capped at 4.56 trillion naira ($30 billion) as the government seeks to rein in expenditure over the next three years. Parliament approved spending of more than 4.8 trillion naira for 2010, up more than 50 percent on the previous year.