Nigeria proposes 2012 budget with higher spending
Nigeria's president presented a 2012 budget plan to the national assembly on
Tuesday including increased spending but a lower deficit, saying it marked the
start of prudent fiscal planning during uncertain times.
Analysts voiced concern that Africa's largest oil exporter will be depending for its
revenue on no disruptions to its crude output, with global economic conditions
another key risk factor.
President Goodluck Jonathan said spending would rise to 4.749 trillion naira from
4.48 trillion naira in 2011 but spending to keep the government running would
fall to 72 percent of the budget from 74.4 percent as the government spends
more on capital projects.
Nigeria is often criticised for spending most of its money on running the
administration rather than on badly needed infrastructure projects to create jobs
and boost growth in the continent's second-largest economy.
"With the support of the national assembly, the government is determined to
pursue a programme of far-reaching fiscal consolidation so as to reduce our
deficit and domestic borrowing to more manageable levels," Jonathan told
lawmakers, dressed in his trademark kaftan and fedora hat.
The fiscal deficit will be cut to 2.77 percent of gross domestic product next year
from 2.96 percent in the 2011 budget, Jonathan said.
He told lawmakers the 2012 spending plan was based on a benchmark oil price of
$70 a barrel and production of 2.48 million barrels per day.
That output projection is higher than expected, however, and leaves little room
for potential production outages, which have been common in the past.
"While markets may initially react positively to the announcement that the fiscal
deficit is likely to narrow further as well as the slight reduction in the proportion
of recurrent expenditure, we caution that there are still significant concerns," said
Razia Khan, head of Africa research at Standard Chartered.
"Spending has been raised further during uncertain times globally … leaving little
wriggle room for the budget in response to any downside uncertainty that may
impact on domestic (oil) output," Khan added.
The budget proposal also assumed an exchange rate of 155 naira to the U.S.
dollar compared with the current level of above 160, and average inflation of 9.5
percent compared with current double-digit levels.
GDP growth was forecast at 7.2 percent in the budget proposal.
Africa's most populous nation is supposed to put revenue above the benchmark
oil price into a savings account to cushion it from future oil shocks. But analysts
have raised concerns about how Nigeria would cope with a dip in oil prices, given
the country's inability to save during a period of booming prices.
The Excess Crude Account (ECA) has been drained in recent years, despite high
oil prices. The government removed $2 billion from the ECA for "various projects"
last month and it now contains an estimated $3 billion.
Foreign exchange reserves are around $33 billion, down $1 billion from the same
period last year, despite oil prices averaging over $100 a barrel during that
Fitch ratings agency revised its outlook on Nigeria to 'stable' from 'negative'
in October following April elections, which observers said were the fairest in
decades, and on optimism over a new economic team focused on reforms.
Jonathan appointed former World Bank managing director Ngozi Okonjo-Iweala
as finance minister following his election victory and she pledged to clean-up
public finances, launch a sovereign wealth fund and end costly petrol import
Okonjo-Iweala said subsidies would cost $7 billion this year, a quarter of total
spending, but Jonathan made no mention of subsidy plans or the SWF in his
The subsidy plan is controversial because most Nigerians believe cheap fuel is the
only benefit they get from living in an oil-rich state. Economists see removing the
handout as a necessary step because subsidies fuel corruption.
Fitch warned that a sharp fall in oil prices or the failure to improve savings
mechanisms, like the SWF, or to push through badly needed reforms to the
power, energy and agriculture sectors could lead to downward pressure on