08 November 2015, Lagos – Amidst the growing call for the introduction of economic stimulus in the face of the current revenue crisis largely accentuated by the slide in crude oil price, the federal government is said to be planning a spike in spending in 2016 fiscal year as it proposes a budget of N8 trillion naira, almost doubling this year’s figure of N4.4 trillion.
A Reuters’ report, which quoted a document from the office of Vice President Yemi Osinbajo, revealed that the federal government is proposing a capital expenditure of N2 trillion next year, up from N1.3 trillion in 2015, but did not say how it would be funded.
The document, which was used for a presentation to the new cabinet during a two-day retreat last week, was said to have outlined the need for a “massive infrastructure building” programme for roads, rail and power, along with “expansionist” fiscal and monetary policies.
The agency report quoted the Vice President as explaining that the infrastructural projects would be paid for by a N25 billion infrastructure Fund and a N2.5 trillion “special intervention fund”. But it gave no details of where this money would come from.
Osinbajo said the budget process will be “zero based, a method of budgeting by which all expenses must be justified for each new budget year.
“For the Medium Term Expenditure Framework, the actual 2015 budget is N4.4tn, while the proposed 2016 budget will be N7tn to N8tn.
“Fixing the transitional electricity market is currently the most important priority area,” the document reportedly stated.
“This administration will have a strong focus on solar energy most especially for the provision of power for social services like health and education,” it said. A partnership agreement had been signed with the British government to “assist with driving the Nigerian solar revolution”.
Agriculture, mining and manufacturing were listed as key areas to develop in order to diversify the economy. “Collaboration with China Exim bank to develop 40 rice milling plants” was among the specific plans highlighted.
Responding to the news of the proposed spike in spending in the 2016 budget, foremost economist and Managing Director, Financial Derivatives Company, Mr. Bismark Rewane said, “If the rumour is true that Nigeria plans to spend N8trn in 2016, it will be 100 per cent higher than the 2015 level and a major macro-economic stimulant.”
In his view, “this could be the much needed tonic that Nigerians have been waiting for. But in life there is nothing like a free lunch.”
He noted that the development would be taking place when GDP growth in Q3 will come in at a disappointing two per cent and inflation creeps up to 9.5 per cent, explaining that “A continuation of stagflation and the need for a countercyclical boost becomes compelling.
“The true cost of the economic stimulus, is an increased level of borrowing and compliance with the terms of a responsible debtor. It also means that the economic managers will have to accept that monetary and exchange rate adjustments are inevitable. This will be followed by fiscal consolidation.”
According to Rewane, “Businesses in Nigeria are confounded by exchange rate uncertainty and policy vagueness. Therefore a categorical position on government spending is great news.”
Economic affairs commentators noted that the tough economic conditions witnessed over the last couple of months in the country, especially in the area of declining crude oil and gas receipts and Federal Government’s inability to meet some of its financial obligations.
*Festus Akanbi – Thisday