The big question many have asked about the 2016 budget of N6.08 trillion proposed by President Muhammadu Buhari has been what would happen to the Naira, unemployment rate, inflation rate, debt profiles, investors confidence, amongst other variables. Hence this in not a budget that needs any rush in its passage by the National Assembly.
Figures from the budget assumptions are; benchmark of $38 per barrel and a production estimate of 2.2 million barrels per day, N198 – $1 benchmark. Buhari has proposed borrowing N984 billion domestically and N900 billion externally (Foreign borrowing) and a debt servicing of N1.6 trillion.
Fact from global oil benchmark projections states that oil prices would float around + and -$35p/b, in the next 12 months, hence the need to us to re-price our benchmark. On Nigeria’s debt profile, the most important fact to know is what percentage of our revenue is being used.
Figures show that the government plans to use 35% of our revenue to finance debt in 2016, hence going above the threshold of 25% recommended by the Debt Management Office, DMO.
Already we have a N2 trillion deficit for 2015 budget, and we are financing another N2.2 trillion deficit for 2016. This decision would take our debt profile from $60 billion to $80 billion.
A fallout from this is that Nigeria has already hit its Debt ceiling (reached the limit of our debt), now using 35% of revenue from oil and taxes to repay our debt. However Buhari while delivering his speech didn’t make mention of this but rather stated that we are still within limit in debt to GDP ratio.
“The deficit, which is equivalent to 2.16% of Nigeria’s GDP, will take our overall debt profile to 14% of our GDP. This remains well within acceptable fiscal limits” Buhari stated as a smokes screen to divert our minds.
No doubt the 2016 budget has embarrassed the private sector as no plan has been initiated on driving a Public Private Partnership, PPP, especially in the area of infrastructural development (Roads, Schools, hospitals, rebuilding the north east amongst others). With the manufacturing sector now into recession after 2 consecutive quarters of negative sectorial growth, the anticipation of getting out of the slow growth might not be achieved.
Recall that the economy have lost 2% real growth rate already in 2015, yet no aggressive move in the 2016 budget at increasing funding to the Bank of industry, BOI, and Bank of Agriculture, BOA, which are the primary support bank for financing the manufacturing industry. The fact is that unemployment rate would increase in 2016, despite the budget.
On the issue of revenue diversification, that budget should have been targeted at initiating plans with the help of the Bureau of Public Enterprises, BPE, and the Bureau of Public Procurement, BPP, to put out concession and privatizations plans especially in the area of housing and infrastructure, bear in mind we have a 17 million deficit.
With the naira currently trading above N250 – $1, in the parallel market, however the 2016 budget have been pinned on N198 – $1, the critical question which the budget did not answer is if the CBN would adjust and implement currency devaluation.
By Sanni Muhammed.