Ana - Nigeria Development & Finance Forum

Report
Nigeria’s Medium Term Public
Expenditure Outlook
Sabastine Akongwale
Public Finance & Macroeconomics Division, National
Institute for Legislative Studies, Abuja –Nigeria
Nigeria Development Finance Forum(NDFF), 2013
North American Conference.
Date: June 4th, 2013
VENUE:
Washington Marriott at Metro Centre, Washington
DC, USA
Disclaimer
 The Views expressed in this presentation are solely
those of the author and
do not in any way
represent the views of any government agency in
Nigeria
Structure of the Nigerian Economy
 Mostly depends on crude oil sales; 6th largest Producer in the world
 Crude oil sales account for over 70% of federal revenue
 Reasonably liquid capital market
 Huge proven solid mineral reserves
 Very agrarian; with huge potential for development. Agriculture
contributes circa 30% of GDP( A decline from pre oil boom years)
 Large market size :- over 160 Million people ( based on 2006, National
Population Census)
o Economic fundamentals:
Size of the economy proxied by GDP - $450 Billion PPP, 2012 est.
Inflation for 2012 – about 9.8 % - Bloomberg
Growth rate for 2012 ------ about 7%
Projected growth rate for 2013 ------- 6.5% , Finance Ministry
Credit Rating: S&P = Domestic B+; foreign B+; Fitch BB-
Procyclicality of Nigeria's Public Expenditure Pattern
Figure 2: Procyclical Public Expenditure Pattern in Nigeria
300
250
200
150
Changes in Oil Revenue
100
Changes in Total Govt Exp
50
0
-100
Source: CBN Annual Statistical Bulletin (2010)
2009
2007
2005
2003
2001
1999
1997
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
 Hence, the adoption of the Medium Term Expenditure
-50 Framework
Key Stages in the Public Expenditure Cycle in Nigeria, Since 2010
1. MediumTerm Revenue
Framework
7. Budget
Monitoring &
Evaluation
2. MediumTerm Fiscal
Framework
3. MediumTerm Sector
Strategies
6. Budget
Execution
5. Budget
Presentation &
Appropriation
4. Formal
MTEF/FSP
Reports
Nigeria's Medium Term Public Expenditure Outlook
 Anchored
on the -The Medium Term Expenditure
Framework (MTEF) and Fiscal Strategy Paper (FSP)
-
Statutory documents, which articulate Government’s
revenue and expenditure plan as well as its fiscal policy
objectives over a 3-year period. ( a departure from the
annual rolling plans of the years preceding 2009)
-
MTEF is enshrined in the Fiscal Responsibility Act, 2007
which mandates the Federal Government to develop an
FSP within an MTEF for the next 3years.
The adoption of the Oil price based fiscal rule
All budgets now drawn from the MTEF
-
What is the Fiscal Policy Direction?
 The policy thrust of the 2013-2015 MTEF/FSP is anchored
largely on:
1) Strengthening fiscal consolidation by scaling down
government spending and creating a prosperous economic
environment for a private sector led growth.
2) Ensuring that government spending is targeted towards
increasing the capital expenditure component of the aggregate
expenditure so as to narrow the huge infrastructural gap and
promote overall economic growth and development
Where is the MTEF drawn from ?
 From the NV 20:2020
- A long term plan for stimulating Nigeria’s economic growth
and launching the country onto a path of sustained and rapid
socio-economic development.
-Articulates Nigeria’s growth and development strategies for the
eleven-year period between 2009 and 2020, and will be
implemented using a series of medium term national
development plans. Emphasis now is on moving from yearly to
medium Term Plan
Objective By 2020
 Economic diversification away from a mono-product, oildependent economy
 Transformation of the structure of exports from primary
commodities to processed and manufactured goods
Table1: Nigeria's Revenue Performance (N’ Billion) -Source, CBN Economic
Report, 2010, 2011 and 2012, MTEF Documents
1tems
2010
2010
2011
2011
2012
2012
(JanJun)
(JanJun)
2013
2014
2015
Projecte Actual
d
Projecte Actual
d
Projecte Actual
d
Projecte projecte Projecte
d
d
d
Federally
Collected
Revenue
(Gross)
6,769.3
7,284.5
7,914.7
11,158.
4,598.8
5,493.9
10,839
11,661.
12,406
Oil
revenue
4,902.3
5,396
5,760.4
8,878.9
3201.8
4,357.6
7,250.5
7,473.7
7,769.4
Non-Oil
Revenue
1,867
1,888.3
2,154.3
2,279.5
1397.2
1,136.2
3,298.5
3,878.7
4,308.7
Nigeria's Oil Revenue Performance & Projections.
 Table 1: shows the structure of Oil revenue from 2010-2015.

Actual oil revenues were N5,396 billion. N8,878.9 billion and
N4,382.2 billion in 2010, 2011 and first half of 2012, respectively as
against
theReport
projected
revenue
ofdocuments
N4,902.3 billion, N5,760.4 billion and
CBN Economic
2010, 2011, 2012,
MTEF, FSP
N3,201.6 billion, respectively, for the same period.(thus, meeting its
target)

The MTEF and FSP document projects N7,250.5 billion, N7,473.7
billion and N7,779.4 billion for 2013, 2014 and 2015, respectively

Implications of Nigeria Revenue Performance
I.
This implies that the projections of the MTEF and FSP
document for this source of revenue seem achievable.
II. Other sources of oil revenue have always contributed
more revenue than the projections since 2010 and they
are expected to contribute more than the projected
revenues in the next three years.
III. Hence, the projections for other sources of oil revenue in
the MTEF and FSP document are tenable.
Federal Government Fiscal Operations (2010-2015)
Items
2010
2010
Projected Actual
2011
2011
2012
2012
(Jan-Jun (JanJun)
projecte Actual
d
1,780.1 1,819.2
2013
2014
2015
project projecte
ed
d
3,891.4 4,257.9
projecte
d
4,573.1
Retained
Revenue
2,433.8
3,046.6
Projecte Actual
d
2,836.4 3,092.8
Aggregate
Expenditure
Capital
Expenditure
5,159.7
4,311
4,483.7
4,099.3
2,348.5
2,018.5
4,928.6 5,158.7
5,311.5
1,581.2
897.9
1146.8
733.2
670
400.9
1,544.7 1,652.8
1,704.4
Recurrent
Expenditure
3,211.4
3,230.7
2920.1
3,100.7
1678.5
1489.3
3,003.2 3,081.3
3,157
Transfers
183.6
182.5
417.8
265.4
186.3
128.3
380.5
450
Overall
-2725.9
Balance:
Surplus/Defi
cit
-1264.
-1647.3
-1006
-568.4
-199.
-900.8
1,037.2
-738.4
Deficit/GDP -8.35%
-4.33%
-2.62%
-2.62%
-2.85%
-2.85%
-1.60%
2.17%
-1.11%
424.7
Fiscal Operations Cont.
CBN Economic Report 2010, 2011, 2012, MTEF, FSP documents, Review of 2012 budget
AGGREGATE EXPENDITURE

The projections contained in the MTEF indicates that for 2013,
2014, and 2015 Aggregate Expenditure will be -N4,928.566 billion,
N5,158.726 billion and N5,311.476 billion, respectively.
 Aggregate expenditure is expected to grow by 13.4%, 4.7% and 2.96%
in 2013, 2014 and 2015 respectively.

The ratio of recurrent to capital expenditure during the MTEF
2013-2015 period is expected to decrease marginally.

The ratio of recurrent to capital expenditure in the 2012 budget
was 72% to 28%, those of 2013, 2014, and 2015 are 68.7% to 31.3%,
68.3% to 32%, and 67.9% to 32.2%, respectively.
Federal Government Retained Revenue and Fiscal Deficit
 Projected Federal Government Retained Revenue for 2013,
2014, and 2015 in the MTEF document are N3, 891.376 billion,
N4, 257.973 billion and N4, 573.123 billion, respectively, and
shows a steady growth path from 2010 to 2015.
 Available data from the CBN shows that Federal Government
Retained Revenue for 2010, 2011 and first half of 2012 were N2,
903.3 billion, N3, 092.8 billion, and N1, 819.2 billion,
respectively.
 The actual for 2010-2012 surpassed the projections for the
same period. The possibility of 2013-2015 projections being
realistic therefore, is very high.
Federal Government Deficits
Actual deficit for 2010, 2011 and first half of 2012 were N1, 264.5
billion, N1, 006.5 billion and N199.3 billion, respectively, which
were financed by borrowing through the sale of FGN bonds.
The projected fiscal deficit for the period 2013 -2015 as contained
in the MTEF document are N1,037.2 billion, N900.8 billion, and
N738.4 billion, respectively.
(Implying a significant decline in federal government deficit!)
The total level of spending implies a deficit of 2.85 per cent, 2.17
per cent, 1.60 per cent and 1.11 per cent of GDP in 2012, 2013,
2014, and 2015, respectively, as against 6.06 per cent of GDP in
2010. The government intends to finance these deficits from
domestic borrowing.
ANALYSIS OF CONSOLIDATED DEBT AND CONTINGENT LIABLITIES
The 2013-2015 MTEF projection of domestic borrowing, which is to decline from
N727.19 billion in 2013 to N 625.759 billion in 2014 and then to N 503.359 billion in
2015, is reasonable.
However, going by the MTEF projections, the growth rate of domestic debt from
2012 to 2013 is 11.82 percent; 9.10 percent from 2013 to 2014; and 6.70 percent from
2014 to 2015. This gives an average of 9.21 percent growth in domestic debt as a
result of domestic borrowing.
The projected MTEF domestic borrowing for 2013-2015 is, therefore, going to
increase domestic debt from 2013-2015. But the increase is by 15.66 percent less than
the figures for 2010-2012. Therefore, the MTEF 2013-2015 domestic borrowing
projections has milder consequence on total domestic and gross domestic product.
This is seen as the debt/GDP ratio (burden of debt on GDP) is lower for 2013-2015
compared to 2008-2011 values. See Figures 7, 8 and 9.
Corruption, Profligacy & Public Expenditure
Introduction
of
Government
Integrated
Financial
Management Information System (GIFMIS) to make budget
preparation and execution more efficient and transparent. Will
also improve the index of capture and enhance effective
budgeting system
The 2012 budget framework set out measures to promote
various sectors including agriculture, manufacturing, power
and infrastructures. These are expected to increase value chain
in the non-oil sector and improve non-oil revenue.
In the light of this, the 2013-2015 MTEF is derived, to
consolidate on the 2012 budgetary stance on the non-oil
diversification through enhancing the Company Income Tax
(CIT) and the Value Added Tax (VAT).
Trend Domestic Borrowing
Figure 7: MTEF Projection for Domestic Borrowing
MTEF Projection for Domestic Borrowing: 2013-2015
800.000
700.000
727.190
625.759
N billion
600.000
500.000
503.359
400.000
300.000
200.000
100.000
0.000
2013projected
2014projected
2015projected
Projected Domestic Borrowing
Source: FMF/BOF
Debt/GDP Ratio
Figure 9: Nigeria’s Debt/GDP Ratio
Nigeria's Debt/GDP Ratio (Actual and Projected*): 2008-2015
15.61
16
14
12.98
15.38
12.97
12
10
9.55
9.29
8.45
% 8
7.81
6
4
2
0
2008
2009
2010
2011
2012
Sources: CBN, 2010; NBS, 2012 and FMF MTEF, 2012
2013*
2014*
2015*
Foreign and Domestic Debt Service
Figure 10: Nigeria’s Foreign and Domestic Debt Service
Nigeria's Foreign and Domestic Debt Service (Actual and
Projected Values): 2005 - 2015
700
600
8000
500
6000
400
4000
300
200
2000
100
0
0
2005
2006
2007
2008
2009
2010 2011
Foreign Debt Service (US$)
Source: Debt Management Office
2012 2013* 2014* 2015*
Domestic Debt Service (Nb)
N Billion
US$ Million
10000
Debt Analysis Cont.
Debt service/GDP ratio is projected to be low during 2013-2015.
The Nigerian foreign debt service/GDP has being relatively stable
from 2007-2012 and projected to remain stable during 2013-2015.
On the other hand, the domestic debt service/GDP exhibited some
fluctuations between 2010 and 2012 but projected to be stable from
2013-2015.
For example, data show decline in foreign debt service/GDP (from
0.15 % in 2012 to 0.1% in 2013) and domestic debt service/GDP
(from 1.35% in 2012 to 0.8% in 2013).
Debt Analyses Cont.
 The trend reveals a sharp and stable decline for foreign
debt service/GDP, implying that, the projections are
consistent with historical trend and minimal burden on
GDP that is also realizable.
 The trend of domestic debt service/GDP, however,
reveals a relatively stable position since 2011.
Nigeria’s foreign debt/GDP
Figure 11: Nigeria's Foreign and Domestic Debt Service as Ratio's to GDP:20052015
9
2.5
FDS/GDP (%)
7
6
2
5
1.57
4.66
1.34
4
1.03
3
1.42
1.44
1.5
1.35
1.02
1
0.8
2
1
0.63
0
2005
2006
2007
0.23
2008
0.26
2009
0.18
2010
fds/gdp (%)
0.14
2011
0.15
2012
dds/gdp (%)
DDS/GDP (%)
8
3
8.11
2.7
0.1
2013*
0.67
0.58
0.5
0.08
0.06
0
2014*
2015*
Implication of Nigeria's medium terms expenditure outlook for
investors.
 Given Nigeria’s gravitation towards fiscal consolidation and its
current Positive Medium Term Economic Outlook, the country
will make a very vibrant destination for investment given
that:
(i) There are no debt over hang problems as in the 1980s
1990s, and the early 2000s. This is especially so, if the lessons
from the Eurozone debt crises and the poor debt to GDP
profile of some emerging economies is anything to go by
(ii) Its medium term expenditure out look is mostly geared
towards economic diversification from oil dependence into
areas such as Power sector improvement, Agriculture, Solid
mineral development, ICT etc. Thus, any investment venture
into such areas , with a market size of over 160 People
million will no doubt be worth while
Implications of Nigeria's Medium Term
Expenditure Outlook for Investments

 Nigeria’s Revenue and Debt profile is healthier than that of
most advanced economies as that of most some emerging
economies.
 Lowers the prospects of sudden and drastic cuts that could
dampen the growth of the economy.
- There now exist perfect “ cross walking” from planning to
budgeting, which will allow for consistency in policy, and by
extension reduce the risk factors to be considered in
investing in sectors favoured by these policies
- As the saying goes – “ He who dares wins” !
Gratias!
 Thanks for Listening!

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