Senate inflates 2012 budget, may cause stalemate

The Senate passed the 2012 budget on Thursday with higher expenditure than the finance minister advised, risking further delays to implementing spending plans if President Goodluck Jonathan refuses to approve them.

Spending plans for Africa’s second largest economy have a history of being delayed, leaving ministries uncertain of how much money they will have until months into the year.

Last year lawmakers inflated spending proposed by government but Jonathan sent back the budget and asked them to make more cuts, before a compromise was reached weeks later.

Government departments often lobby legislators to increase spending on their ministries. One of the reasons given for the increase in the Senate was to fund a programme to help the poor adjust to an eventual scrapping of fuel subsidies.

Nigeria’s lower and upper house agreed total expenditure of 4.88 trillion naira ($31 billion), increased from 4.65 trillion proposed by Finance Minister Ngozi Okonjo-Iweala last month.

The spending plans assume a $72 a barrel benchmark oil price, up from $70 in the proposal submitted by Okonjo-Iweala, boosting revenues available to the government.

Africa’s largest oil exporter saves money it earns over the benchmark price to cushion the economy against price shocks and economists and the Central Bank Governor Lamido Sanusi have urged lawmakers not to push it above $70 barrel.

The budget assumes oil production of 2.48 million barrels per day, an exchange rate of 155 naira to the dollar, 9.5 percent inflation and GDP growth of 7.2 percent. These are all unchanged from last month’s proposal.

Delays to the budget, widespread corruption and a patronage culture means many of the capital projects proposed in budgets never get completed, leaving infrastructure dilapidated. Okonjo-Iweala says improving implementation is a top priority.

Despite holding the world’s seventh-largest gas reserves Nigeria only produces enough electricity to power a medium-sized European city, putting a major break on economic development.

“In our view the first question is how much of the budgeted capital expenditure will actually be implemented,” said Alan Cameron, an economist at Nigerian stockbroker CSL, noting that 2011 saw just over three quarters implemented, an improvement on a historical average of around half.

 

STRONG GROWTH, WEAK GOVERNANCE

President Goodluck Jonathan won an election last year pledging to create jobs, overhaul electricity production, unlock the huge gas reserves and cut poverty.

Reform plans have since stalled. A bill aimed at reforming the energy sector has been stuck in parliament for years, while a proposed sovereign wealth fund, the 2012 budget and power privatisation plans are months behind schedule.

Despite institutional bottlenecks, Nigeria’s economy grew at a faster rate in the fourth quarter last year, rising 7.68 percent, compared with 7.4 percent in the previous quarter, even as the oil production that provides most of the country’s export revenues declined.

Analysts say growth in the non-oil sector is encouraging.

“Increased reliance on non-oil revenue is the trend that we hope to see over the medium term, otherwise the pace of spending growth Nigeria has seen in recent years will not be sustainable. Broadbased development typically has a lasting impact – non-renewable resources do not,” said Razia Khan, head of Africa research at Standard Chartered.

But there remains huge scepticism over the government’s ability to contain spending, reflected in a continual raiding of its oil savings in the excess crude account (ECA) over the past few years, while oil prices have stuck at historic highs.

Nigeria passed a law in May last year to set up a sovereign wealth fund (SWF) but powerful state governors have tried to block its launch and there is no clarity on its status.

The SWF was supposed to replace the ECA, which can be too easily dipped into, and save for future generations, finance infrastructure projects and provide a stabilisation fund to defend the economy against oil price falls.

But its launch has been held up by wrangling, and it will still ultimately rely on the government’s own fiscal restraint.

Standard Bank’s Samir Gadio said this and previous budgets “tend to suggest that large segments of the political elite are still not comfortable with the concept of fiscal restraint.”

“There is no doubt that an oil-producing country like Nigeria should have posted a massive consolidated fiscal surplus amid elevated oil prices, but the continued monetisation of excess crude account proceeds prevents … improvement in this area,” he said.

One Comment

1. 

   Oluwasmaseunid9

   March 16, 2012 at 4:49 pm

   Nigeria need to follow the economic thrust of the minister of finance. Increasing spending in the budget does no good!