Moody’s: Nigeria’s Perennial Budget Delay Reflects Weakness of Institutions


Obinna Chima

Moody’s Investors Service has described the perpetual delay in passing Nigeria’s annual budget as a reflection of the weakness of institutions in the country.

Moody’s Senior Analytical Advisor for Africa, Mr.Aurélien Mali said this in an interview with THISDAY in Lagos.

More than two weeks after Nigeria’s Senate passed the 2018 Appropriation Bill following the consideration and adoption of the report by the joint National Assembly Committee on Appropriation, President Muhammdu Buhari was yet to sign it into law as at Monday.

The budget of N8.6 trillion was passed six months after the president presented it to the legislature.
But Mali pointed out that the budget delays “speaks to the weakness of the institutions in Nigeria,” adding that it is “has also been a long term constrain for the rating.”

The analysts stressed that the ability for Nigeria to fully implement its annual budget remains key for the success of its Economic Recovery and Growth Plan (ERGP).
In addition, he noted that implementing is budget is also important to improve the state of infrastructure in the country.

“Nigeria needs better infrastructure to be able to take off in terms of sustainable growth and reaching a growth rate that supports the living standard of Nigerians.

“We expect 2.8 per cent growth in Nigeria this year. But it is still not enough to really make much changes. So, to be successful, the ERGP needs to be implemented.
“So, it speaks again to the ability to raise resources so that infrastructure can be built,” the analyst explained.

The ERGP explains the economic policies of the government over the medium term.
But he stressed the need for its implementation.

“For instance, implementing the budget fully is the key to achieving those targets,” he added.
Furthermore, Mali who acknowledged that while Nigeria and other African have infrastructure deficit that needs to be funded, he advised against excessive debt.

He stressed that countries must always have their eyes on their debt level as well as debt service.
According to him, the debt profile of any nation ought to be sustainable.

“So, in theory, you borrow as much as you can repay because if you can’t repay, there is a big problem. So, the issue is the borrowing that had been occurring in most African countries during this period of difficulties, a portion has been mostly funded recurrent expenditures such as salaries and so on, and not to borrow to build infrastructure.
“Yes, the infrastructure is important, but it cannot be funded without a sustainable debt profile and debt service level.

“Today, Nigeria spends close to 40 per cent of its revenue just to service its debts. All these resources could be directed to build schools, hospital, etc,” Mali explained.

He pointed out that following the drop in commodity prices, a lot of African countries witnessed the deterioration of government’s balance sheet.
“So, now that there is an accommodative oil price, you will see stabilisation and a bit of support in the short-term for government revenue.

“But it doesn’t mean that the weaknesses or fragility exposed by the low commodity prices have been addressed.
“There have been efforts to raise non-oil taxes or non-commodity taxes in many countries, but still government revenue remains relatively low in many African countries and is subject to commodity price volatility.
“The balance sheets of governments in the region have also deteriorated and that poses some risks over the medium,” Mali said.

Commenting on the currency swap agreement that was signed between Nigeria and China recently, the analyst said: “This is important because a big portion of the non-oil imports are Chinese goods. So, it means that it will lower the demand for dollars.

“It will also protect the reserves and will help improve trade between Nigeria and China. But despite that, it doesn’t change the country’s dependence on oil. The implementation of the ERGP to diversify the economy is very important.”