President Goodluck Jonathan
By Obinna Chima
Analysts at Financial Derivatives Company Limited (FDC) have said the proposed 2013 budget may not achieve its fiscal consolidation and growth objectives, if the $80 per barrel oil benchmark recommended by the House of Representatives is adopted.
This, the firm argued might hurt the external reserves’ accretion recorded this year and also make it difficult for government to respond to shocks.
The Lagos-based financial advisory firm stated this in its bi-monthly economic and business update, dated October 18, but was made available to THISDAY at the weekend.
President Goodluck Jonathan had proposed benchmark oil price of $75 per barrel in the 2013 appropriation bill. However, the Senate also recommended $78 per barrel oil benchmark.
But the FDC said: “In our opinion, it is likely that the proposed 2013 budget may not achieve its fiscal consolidation and growth objectives. The President may be compelled to submit to the wishes of the legislators and increase the benchmark oil price to $80. Consequently, spending will increase.
“If the oil price drops, savings obtained from crude oil sales would reduce and external reserves accretion would be negatively affected, which will make it difficult for the government to respond adequately to an economic crisis.”
Jonathan had presented an appropriation bill of N4.9 trillion for 2013, compared with N4.697 trillion in 2012. The share of the recurrent spending in aggregate expenditure in the 2013 budget estimate was reduced from 71.47 per cent in 2012 to 68.7 per cent, while capital expenditure as a share of aggregate spending was also increased from 28.53 per cent in 2012 to 31.3 per cent in 2013.
Continuing, the firm which has Mr. Bismarck Rewane, as its Chief
Executive Officer, pointed out that the proposed oil production level of 2.53mpbd for 2013 was too optimistic considering the level attained so far in 2012.
“Production is currently about 2.16mbpd and it is not likely to increase if the problems of oil theft and pipeline leakages are not addressed. Besides, revenue would be adversely affected if weakness in the global economy causes disruption in output levels. In that case, the deficit gap is expected to be larger and domestic borrowing would increase.
“In conclusion, the proposed 2013 budget seems promising in its quest to promote fiscal consolidation and growth. Nevertheless, the poor performance of previous budgets makes it difficult to believe that the proposed 2013 budget would be any different
“The budget is a plan of the intended revenues and expenditures for a country. It is also a tool for macroeconomic management that could help promote fiscal prudence and foster growth in the economy. The 2013 budget is very similar to the most recent Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper sent to the National Assembly for approval,” it added.