Concern Mounts over N4.972tr Fiscal Spending

Sanusi Lamido, CBN Governor

There are doubts over the possibility of the 2011 fiscal appropriation meeting its objectives, especially with the huge fiscal spending of N4.972 trillion, as passed by the National Assembly last Wednesday.

The Regional Head of Research for Africa, Standard Chartered Bank, Razia Khan, said in Lagos Thursday that the concern stems from the misstep in allocations to capital and recurrent expenditures as well as in fixing of the benchmark oil price of $75 per barrel.

Khan, who made a presentation on “Nigeria and the Supercycle” decried the fact that Nigeria is spending a lot of money, when it should be saving for the rainy day, stressing that the situation is even more problematic when the spending is not on what can guarantee enhanced revenue in the future.

“When you continue raising recurrent expenditure, it becomes a culture and difficult to cut down. Nigeria is in a more difficult situation when the spending does not guarantee future growth,” she said. Raising the benchmark oil price to $75 per barrel has implications on excess crude savings for instance the Sovereign Wealth Fund (SWF) as proposed,” Khan said.

The Nigerian National Assembly last Wednesday approved an aggregate expenditure of N4.972 trillion for the 2011 fiscal year, which represented an increase of about N433 billion over the amount presented to the lawmakers by the Presidency last December.

The budget provided the sum of N2.5 trillion for recurrent  spending, while capital expenditure that allocated N1.6 trillion. The budget was predicated on a benchmark oil price of $75 per barrel, as against the $65 proposed by the Executive, while crude oil production was put at 2.3 million barrels per day.  The budget benchmark exchange rate was predicated on N150/$1.

Khan noted that the threat of inflation remains high in Nigeria as well as in Africa but counseled that the authorities should be careful in the way the situation is handled to ensure that measures taken do not affect investment and production.  

On the value of the naira, she said while exchange rate flexibility might be necessary for Nigeria it is not advisable to devalue the local currency.

“The CBN funding of the market has been stable so it can’t be rightly said that its intervention is running down reserves. The CBN has just been providing  about a third of the forex utilised at the market,” she said, adding that in keeping with flexibility in foreign exchange management, the monetary authority might need to reduce its target benchmark from N150/$1 to N151/$1 and still maintain the plus or minus 3 percent band, but that devaluation is out of it considering the country’s economic realities.