The Naira is expected to depreciate further in 2013 as government is basing its medium term expenditure on an exchange rate of N160 to the dollar next year and beyond.
According to government official exchange rate estimate for the just submitted medium term expenditure framework of the government, the Naira will be officially exchanged at N160 in 2013, 2014 and 2015.
In the revised 2012-2014 revenue and expenditure framework, the Federal Government had estimated that the Naira during the period will exchange at N150 in 2011, N155 in 2012 and N155 in 2014.
As at today, the Naira exchange, at N156 to the dollar. At the inter-bank market the naira is currently exchanging at N156 to the dollar while at the open market it is being exchanged at N160 to the dollar.
If the 2013 budget is based on N160 to dollar as official exchange rate, the inter-bank market rate will rise as well as the open market rate. It would mean that the government expects the Naira to depreciate further as from next year.
Also in the 2013-15 revenue and expenditure framework, the bench mark for crude oil sale is $75 per barrel for the three year period. The government, it was learnt, has based its calculation on crude oil production of 2.526 million barrel in 2013, 2.611million barrel per day in 2014 and 2.648 million barrel per day in 2014.
In the 2012-2014 framework the government had based its calculation on oil production of 2.3 million barrel per day in 2011, 2.480 million barrel per day in 2012, 2.550 million barrel per day in 2013 and 2.575 million barrel per day in 2014.
By government calculation, Nigeria will earn gross revenue of N10.839 trillion in 2013 out of which earnings from oil and gas will amount to N7.250 trillion.
In 2014 it is projected that the revenue that will accrue to the nation will be N11.661 trillion out of which revenue from oil and gas will amount to N7.473 trillion. In 2015 the government is hoping to realize a revenue of N12.406 trillion and N7.769 will be from oil and gas.
The Federal Government in the 2013 to 2015 revenue and expenditure framework said: “The 2011 budget with aggregate expenditure of N4.485 trillion was an initial step towards fiscal consolidation as the total level of spending implied a deficit of 2.85 percent of GDP, a significant reduction from the 6.06 percent of GDP in 2010.
This aggregate expenditure included statutory transfers of N417.82 billion, debt service of N495.1 billion, personnel costs of N1.503 trillion, overheads of N288.05 billion and capital expenditure of N1.148 trillion.
“The 2012 budget projected revenue of N3.561 trillion and aggregate expenditure of N4.697 trillion was signed into law in April 2012. This was a budget of fiscal consolidation with an implied deficit of 2.85 percent of GDP; a reduction from the 2.96 percent of GDP budgeted in 2011.
The aggregate expenditure is made up of statutory transfers of N372.59 billion, debt service of N559.58 billion, personnel costs of N1.658.73 trillion, “overheads of N265.80 billion and capital expenditure of N1.340 trillion.
Implementation of the 2012 budget is on course. As at the end of the second quarter of 2012, total releases for capital projects stood at N404 billion, while actual utilization as at July 20, 2012 was 56 percent of the N324 billion cash-backed.
The pace of implementation has picked up sharply since the end of May, and the tempo is expected to be sustained going forward.
“In line with the oil-price based fiscal rule as stated in the FRA, 2007, we chose a cautious oil benchmark price of $75/b for the 2013-2015 period.
This is below the current world market price and is underpinned by our model of 10-year and 5- year moving averages, with some adjustment. Revenue in excess of the benchmark price will continue to be set aside in the Excess Crude Account, ECA, and Sovereign Wealth Fund, SWF. The fund has been designed to reduce pro- cyclicality and delink public expenditure from oil price volatility.
“Non-oil revenue estimates are calculated on the basis of changes in the relevant components of GDP. The underlying tax bases are as follows: for company income tax, it is the portion of nominal GDP liable for CIT; and, for value added tax, it is the share of consumption liable for VAT.
In making these projections and in line with best practice, we have taken into account the impact of ongoing reforms. We have also included efficiency factors that account for operational improvements in the various tax administration agencies.
Government intends to increase the contribution of tax revenue to the budget through continuous reforms to modernise and further improve tax administration.
“In the light of the contemporary global uncertainty and in line with the goal of
ensuring macroeconomic stability which is encapsulated in the transformation
agenda, government will sustain its strategy of fiscal consolidation with growth by which efforts to correct the structure of the expenditure profile will be fostered.
Indeed, recurrent expenditure is expected to maintain its decreasing trend, thus, increasing the fiscal space for capital expenditure.
In line with the transformation agenda and in furtherance of the policy objectives of the 2012 budget, over the 2013-2015 periods, key sectors of the economy will remain the focus of this administration.
These include security, power, agriculture, water resources, health, education, works, transport, aviation, Federal Capital Territory and Niger Delta. By investing in these sectors, government intends to reduce the infrastructural gap, thereby, energising the economy so as to create employment and ensure that we have
inclusive growth”.
According to the frame work document: “At a time when several advanced economies are facing austerity measures, Nigeria needs to carefully manage its finances. Even though the macroeconomic fundamentals and fiscal: position remains healthy, the economy could be exposed to negative spillovers if the global economic conditions deteriorate further.
In the light of the above, government intends to further strengthen fiscal consolidation by scaling back its spending and creating-a prosperous environment for a private sector-led growth. Although aggregate expenditure is increasing in absolute terms, the goal is for government expenditure as a share of GDP in the Nigerian economy to reduce in the medium to long term.
“This is in line with the desire to promote the private sector; the reduction in the size of government will be achieved through stricter rationalisation of available resources, including sustaining the reduction of overhead votes.
The figure for overhead decreased from N536 billion in 2010 to N266 billion in 2012. It is expected to further decrease in 2013 to N230 billion or 4.67 percent of total expenditure.
In addition, other measures are being implemented including deferring the procurement of administrative capital; the establishment of a Treasury Single Account (TSA) to manage cash balances better, reduce corruption as well as inefficiency in the allocation of resources, Government has also introduced the Government Integrated Financial Management Information System (GIFMIS) to make the process of budget preparation and execution more efficient and transparent.
In furtherance of these reforms, Government will also rationalize the large number of agencies based on the recommendations of the Oronsaye Committee. Furthermore, the focus continues to be on completing ongoing projects, particularly those with a high rate of return”.
It further said “In the light of the huge amount paid on petroleum subsidy in 2011, the Federal Government has initiated steps to streamline the management of the subsidy scheme, including strengthening the audit and verification process in order to improve its governance, transparency and accountability.
These are expected to yield full results in 2013, while the SURE-P instrument will continue to be used as an intervention window to mitigate the impact of the partial subsidy removal.
As Government continues consultations regarding future policy on subsidy, some amount is being provided for petroleum product subsidy in the 2013 budget.
“In recent times, the recurrent expenditure profile has tended to crowd out capital expenditure.
This increase can be attributed largely to the rising personnel cost resulting from the increases awarded to civil servants, medical personnel and ASUU staff since 2009, as well as the implementation of the Minimum Wage Act, 2011.
The personnel cost increase is a sensitive issue and only a holistic approach can generate a viable and sustainable solution. Efforts in that direction are currently ongoing, including extending biometric verification to all agencies of government, rationalizing public agencies and reducing duplication of mandates between different government agencies.
A.s a result of these initiatives and in line with the trend since 2011, the share of recurrent spending in aggregate expenditure is set to further reduce from 71.47% in 2012 to 68.7% in 2013 while n line with the policy of fiscal consolidation, the fiscal deficit is expected to continue on a declining path from 2.85% of GDP in 2012 to 2.17% of GOP in 20:13.
“This will ensure that we continue stay within the threshold indicated by the FRA 2007 and more importantly, that the deficit will be on a declining path over the period. The macroeconomic benefits expected to accrue from reduction in the fiscal deficit include a reduction in the crowding out of private investors and positive impact on interest rates as well as enhancing confidence and expectations of investors.
“As at June 2012, total external stock stood at $6.0 billion. The Federal Government’s share of this was $3.8 billion (63.3%), while the 36 states and FCT accounted for the balance of $2.2 billion (36.7%). Similarly, domestic debt for the same period stood at N6.15 trillion, bringing the total debt to N7.11 trillion which is 17.8% of GDP.
“Although the domestic debt stock has been on the rise in recent years, the current policy of fiscal consolidation has a positive impact on the size of the fiscal deficit and, thus, domestic borrowing.
As a result, a gradual reduction in the growth of domestic debt stock is expected. In addition, in line with international best practice, the Federal Government will establish a sinking fund to be used for repaying its maturing debt obligations and curb its rising domestic debt profile.
These amounts to be spent on debt servicing and the retirement of future debt obligations will reduce the amount available for capital expenditure in 2013”.
source : vanguard
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