The Naira is expected to depreciate further in 2013 as government is
basing its medium term expenditure on an exchange rate of N160 to the
dollar next year and beyond.
According to government official exchange rate estimate for the just
submitted medium term expenditure framework of the government, the Naira
will be officially exchanged at N160 in 2013, 2014 and 2015.
In the revised 2012-2014 revenue and expenditure framework, the
Federal Government had estimated that the Naira during the period will
exchange at N150 in 2011, N155 in 2012 and N155 in 2014.
As at today, the Naira exchange, at N156 to the dollar. At the
inter-bank market the naira is currently exchanging at N156 to the
dollar while at the open market it is being exchanged at N160 to the
dollar.
If the 2013 budget is based on N160 to dollar as official exchange
rate, the inter-bank market rate will rise as well as the open market
rate. It would mean that the government expects the Naira to depreciate
further as from next year.
Also in the 2013-15 revenue and expenditure framework, the bench mark
for crude oil sale is $75 per barrel for the three year period. The
government, it was learnt, has based its calculation on crude oil
production of 2.526 million barrel in 2013, 2.611million barrel per day
in 2014 and 2.648 million barrel per day in 2014.
In the 2012-2014 framework the government had based its calculation
on oil production of 2.3 million barrel per day in 2011, 2.480 million
barrel per day in 2012, 2.550 million barrel per day in 2013 and 2.575
million barrel per day in 2014.
By government calculation, Nigeria will earn gross revenue of N10.839
trillion in 2013 out of which earnings from oil and gas will amount to
N7.250 trillion.
In 2014 it is projected that the revenue that will accrue to the
nation will be N11.661 trillion out of which revenue from oil and gas
will amount to N7.473 trillion. In 2015 the government is hoping to
realize a revenue of N12.406 trillion and N7.769 will be from oil and
gas.
The Federal Government in the 2013 to 2015 revenue and expenditure
framework said: “The 2011 budget with aggregate expenditure of N4.485
trillion was an initial step towards fiscal consolidation as the total
level of spending implied a deficit of 2.85 percent of GDP, a
significant reduction from the 6.06 percent of GDP in 2010.
This aggregate expenditure included statutory transfers of N417.82
billion, debt service of N495.1 billion, personnel costs of N1.503
trillion, overheads of N288.05 billion and capital expenditure of N1.148
trillion.
“The 2012 budget projected revenue of N3.561 trillion and aggregate
expenditure of N4.697 trillion was signed into law in April 2012. This
was a budget of fiscal consolidation with an implied deficit of 2.85
percent of GDP; a reduction from the 2.96 percent of GDP budgeted in
2011.
The aggregate expenditure is made up of statutory transfers of
N372.59 billion, debt service of N559.58 billion, personnel costs of
N1.658.73 trillion, “overheads of N265.80 billion and capital
expenditure of N1.340 trillion.
Implementation of the 2012 budget is on course. As at the end of the
second quarter of 2012, total releases for capital projects stood at
N404 billion, while actual utilization as at July 20, 2012 was 56
percent of the N324 billion cash-backed.
The pace of implementation has picked up sharply since the end of May, and the tempo is expected to be sustained going forward.
“In line with the oil-price based fiscal rule as stated in the FRA,
2007, we chose a cautious oil benchmark price of $75/b for the 2013-2015
period.
This is below the current world market price and is underpinned by
our model of 10-year and 5- year moving averages, with some adjustment.
Revenue in excess of the benchmark price will continue to be set aside
in the Excess Crude Account, ECA, and Sovereign Wealth Fund, SWF. The
fund has been designed to reduce pro- cyclicality and delink public
expenditure from oil price volatility.
“Non-oil revenue estimates are calculated on the basis of changes in
the relevant components of GDP. The underlying tax bases are as follows:
for company income tax, it is the portion of nominal GDP liable for
CIT; and, for value added tax, it is the share of consumption liable for
VAT.
In making these projections and in line with best practice, we have
taken into account the impact of ongoing reforms. We have also included
efficiency factors that account for operational improvements in the
various tax administration agencies.
Government intends to increase the contribution of tax revenue to the
budget through continuous reforms to modernise and further improve tax
administration.
“In the light of the contemporary global uncertainty and in line with the goal of
ensuring macroeconomic stability which is encapsulated in the transformation
agenda, government will sustain its strategy of fiscal consolidation
with growth by which efforts to correct the structure of the expenditure
profile will be fostered.
Indeed, recurrent expenditure is expected to maintain its decreasing
trend, thus, increasing the fiscal space for capital expenditure.
In line with the transformation agenda and in furtherance of the
policy objectives of the 2012 budget, over the 2013-2015 periods, key
sectors of the economy will remain the focus of this administration.
These include security, power, agriculture, water resources, health,
education, works, transport, aviation, Federal Capital Territory and
Niger Delta. By investing in these sectors, government intends to reduce
the infrastructural gap, thereby, energising the economy so as to
create employment and ensure that we have
inclusive growth”.
According to the frame work document: “At a time when several
advanced economies are facing austerity measures, Nigeria needs to
carefully manage its finances. Even though the macroeconomic
fundamentals and fiscal: position remains healthy, the economy could be
exposed to negative spillovers if the global economic conditions
deteriorate further.
In the light of the
above, government intends to further
strengthen fiscal consolidation by scaling back its spending and
creating-a prosperous environment for a private sector-led growth.
Although aggregate expenditure is increasing in absolute terms, the goal
is for government expenditure as a share of GDP in the Nigerian economy
to reduce in the medium to long term.
“This is in line with the desire to promote the private sector; the
reduction in the size of government will be achieved through stricter
rationalisation of available resources, including sustaining the
reduction of overhead votes.
The figure for overhead decreased from N536 billion in 2010 to N266
billion in 2012. It is expected to further decrease in 2013 to N230
billion or 4.67 percent of total expenditure.
In addition, other measures are being implemented including deferring
the procurement of administrative capital; the establishment of a
Treasury Single Account (TSA) to manage cash balances better, reduce
corruption as well as inefficiency in the allocation of resources,
Government has also introduced the Government Integrated Financial
Management Information System (GIFMIS) to make the process of budget
preparation and execution more efficient and transparent.
In furtherance of these reforms, Government will also rationalize the
large number of agencies based on the recommendations of the Oronsaye
Committee. Furthermore, the focus continues to be on completing ongoing
projects, particularly those with a high rate of return”.
It further said “In the light of the huge amount paid on petroleum
subsidy in 2011, the Federal Government has initiated steps to
streamline the management of the subsidy scheme, including strengthening
the audit and verification process in order to improve its governance,
transparency and accountability.
These are expected to yield full results in 2013, while the SURE-P
instrument will continue to be used as an intervention window to
mitigate the impact of the partial subsidy removal.
As Government continues consultations regarding future policy on
subsidy, some amount is being provided for petroleum product subsidy in
the 2013 budget.
“In recent times, the recurrent expenditure profile has tended to crowd out capital expenditure.
This increase can be attributed largely to the rising personnel cost
resulting from the increases awarded to civil servants, medical
personnel and ASUU staff since 2009, as well as the implementation of
the Minimum Wage Act, 2011.
The personnel cost increase is a sensitive issue and only a holistic
approach can generate a viable and sustainable solution. Efforts in that
direction are currently ongoing, including extending biometric
verification to all agencies of government, rationalizing public
agencies and reducing duplication of mandates between different
government agencies.
A.s a result of these initiatives and in line with the trend since
2011, the share of recurrent spending in aggregate expenditure is set to
further reduce from 71.47% in 2012 to 68.7% in 2013 while n line with
the policy of fiscal consolidation, the fiscal deficit is expected to
continue on a declining path from 2.85% of GDP in 2012 to 2.17% of GOP
in 20:13.
“This will ensure that we continue stay within the threshold
indicated by the FRA 2007 and more importantly, that the deficit will be
on a declining path over the period. The macroeconomic benefits
expected to accrue from reduction in the fiscal deficit include a
reduction in the crowding out of private investors and positive impact
on interest rates as well as enhancing confidence and expectations of
investors.
“As at June 2012, total external stock stood at $6.0 billion. The
Federal Government’s share of this was $3.8 billion (63.3%), while the
36 states and FCT accounted for the balance of $2.2 billion (36.7%).
Similarly, domestic debt for the same period stood at N6.15 trillion,
bringing the total debt to N7.11 trillion which is 17.8% of GDP.
“Although the domestic debt stock has been on the rise in recent
years, the current policy of fiscal consolidation has a positive impact
on the size of the fiscal deficit and, thus, domestic borrowing.
As a result, a gradual reduction in the growth of domestic debt stock
is expected. In addition, in line with international best practice, the
Federal Government will establish a sinking fund to be used for
repaying its maturing debt obligations and curb its rising domestic debt
profile.
These amounts to be spent on debt servicing and the retirement of
future debt obligations will reduce the amount available for capital
expenditure in 2013”.