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.
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”.
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”.
Credit:
Vanguard
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