Transcript Ana - Nigeria Development & Finance Forum
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 4 th , 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; 6 th 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
300 250 200 150 100 50 Changes in Oil Revenue Changes in Total Govt Exp 0 -50 Hence, the adoption of the Medium Term Expenditure Framework -100 Source: CBN Annual Statistical Bulletin (2010)
Key Stages in the Public Expenditure Cycle in Nigeria, Since 2010 1. Medium Term Revenue Framework 7. Budget Monitoring & Evaluation 2. Medium Term Fiscal Framework 6. Budget Execution 3. Medium Term Sector Strategies 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, oil dependent 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
Projecte d Actual
Federally Collected Revenue (Gross)
6,769.3
7,284.5
Projecte d Actual 7,914.7
11,158 .
2012 (Jan Jun) 2012 (Jan Jun) 2013 2014 2015
Projecte d Actual 4,598.8
5,493.
9 Projecte d projecte d Projecte d 10,839 11,661.
12,406
Oil revenue
4,902.3
Non-Oil Revenue
1,867 5,396 1,888.3
5,760.4
2,154.3
8,878.9
3201.8
2,279.5
1397.2
4,357.6
7,250.5
7,473.7
7,769.4
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 the projected revenue of N4,902.3 billion, N5,760.4 billion and N3,201.6 billion, respectively, for the same period target) .(thus, meeting its 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.
Items
Federal Government Fiscal Operations (2010-2015)
2010 2010 Projected Actual 3,046.6
2011 2011 Projecte d 2,836.4
Actual 3,092.8
2012 (Jan-Jun projecte d 1,780.1
2012 (Jan Jun) Actual 1,819.2
2013 2014 2015 project ed projecte d 3,891.4 4,257.9
projecte d 4,573.1
Retained Revenue Aggregate Expenditure Capital Expenditure Recurrent Expenditure 2,433.8
5,159.7
1,581.2
3,211.4
Transfers 183.6
Overall Balance: Surplus/Defi cit -2725.9
Deficit/GDP -8.35%
4,311 897.9
3,230.7
182.5
-1264.
-4.33%
4,483.7
1146.8
2920.1
417.8
-1647.3
-2.62%
4,099.3
733.2
3,100.7
265.4
-1006
-2.62%
2,348.5
670 1678.5
186.3
-568.4
-2.85%
2,018.5
400.9
1489.3
128.3
-199.
-2.85%
4,928.6 5,158.7
1,544.7 1,652.8
3,003.2 3,081.3
380.5
424.7
1,037.2
-900.8
2.17% -1.60%
5,311.5
1,704.4
3,157 450 -738.4
-1.11%
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 N
199.3
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 N
1,037.2
billion, N
900.8
billion, and N
738.4
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 budgeting system and enhance effective 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
600.000
500.000
400.000
300.000
200.000
100.000
0.000
727.190
625.759
503.359
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 %
8 6 4 2 0 16 14 12 10 9.55
2008 12.98
2009 15.61
2010 12.97
2011 15.38
2012 9.29
2013* 8.45
2014* 7.81
2015* Sources: CBN, 2010; NBS, 2012 and FMF MTEF, 2012
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
10000 8000 6000 4000 2000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014* 2015* 700 600 500 400 300 200 100 0 Foreign Debt Service (US$) Source: Debt Management Office Domestic Debt Service (Nb)
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:2005 2015
4 3 2 1 0 9 8 7 6 5 2005 2006 4.66
1.34
1.57
1.42
1.03
1.02
0.8
0.67
0.58
2007 0.63
2008 0.23
2009 0.26
2010 0.18
2011 0.14
2012 0.15
0.1
2013* 0.08
2014* 0.06
2015* fds/gdp (%) 1.44
1.35
dds/gdp (%) 3 2.5
2 1.5
1 0.5
0
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!