More Hard Times Ahead this 2016 as Budget Failure Looms

As the IMF predicts that Nigeria’s economy will contract this year, Minister of

Budget, Senator Udo Udoma on Thursday has painted a more bleak picture for
the economy this year, saying government revenues reached only 55 per cent of
what had been targeted in the first quarter of the year, blaming attacks on oil
facilities in the southern Niger Delta region.
This came as the Secretary to the Government of the Federation (SGF ), Mr.
Babachair David Lawal said that the Federal Government may not fully
implement the 2016 national budget; also attributing the situation to the
activities of the economic saboteur-militants.
The SGF said while the economy should look better in second half of the year,
growth will probably not “be sufficiently fast, sufficiently rapid to be able to
negate the outcome of ” the first and second quarters.
The economy shrunk by 0.4 percent in the first quarter, the first contraction in
more than a decade, as oil output and prices slumped and the passing of the
2016 Appropriation Act was delayed.
According to New Telegraph, a currency peg and foreign-exchange trading
restrictions, which were removed last month after more than a year, led to
shortages of goods from fuel to most consumables and contributed to the
contraction in the first three months of the year.
Leon, who spoke in a recent interview in Abuja, said, while conditions that
impeded growth in the first half of the year, including shortages of power, fuel,
and foreign exchange, as well as the higher price of dollars on the parallel
market, may have been reduced, they still weigh on the economy. IMF cut its
2016 growth forecast for Nigeria to 2.3 per cent in its April Regional Economic
Outlook from 3.2 per cent projected in February.
The World Bank lowered its forecast to 0.8 per cent last month, citing weakness
from oil output disruptions and low prices. Last year ’s expansion of 2.7 per
cent was the slowest in two decades, according to IMF data.
“Most people would agree that if you should fix one thing in this country, it
should be power,” Leon said. “There is a need to start changing the power
equation from 2016, from today, not tomorrow or later.”
Nigeria generated an average of 2,464 megawatts of electricity on June 6,
according to information from the power ministry. This is less than half of the
installed capacity of 5,000 megawatts for a nation whose population of 180
million people is the highest on the continent.
It compares to power generating of more than 40,000 megawatts in South
Africa, which has a population a third of our size. While inflation will probably
continue its upward trend through the end of this year, it is unlikely to exceed
20 per cent, Leon said.
Price of goods growth accelerated to 15.6 percent, the highest rate in more than
six years, in May and probably quickened to 16.2 per cent last month, according
to the median of seven economist estimates compiled by Bloomberg. The
Monetary Policy Committee (MPC ), “may be open to tolerating a little more
inflation if growth emerges as the priority, as opposed to choking inflation and
squeezing the little life out of growth,” Leon said. “But the CBN, in conjunction
with the MPC, needs to be clear to participants in markets what exactly their
priority is.”

The CBN left its benchmark rate unchanged at 12 per cent in May and will
announce its next decision on July 26. The MPC is likely to increase the rate by
500 basis points in the next year “to address the prevailing inconsistencies
between an accommodative monetary policy and a more flexible exchange rate,”
Goldman Sachs said in a note on July 8.
Nigeria’s huge budget of N6.1 trillion, with a deficit of 2.2 trillion, or 2.14
percent of gross domestic product, came into operation in May after a delay of
four months. If had earned all the revenue it targeted, the fact that the budget
was passed late means it’ s likely not all the capital spending planned to boost
growth will take place, or it will not be as prudent as initially set out.
He added, "if expenditure stays as planned, and revenue is less due to the lack
of growth “then we should see not smaller but potentially a larger deficit.”
We are hoping the managers of our economy will rise to the challenge in the
days ahead.