FDC ECONOMIC MONTHLY PUBLICATION – OCTOBER 11, 2019 (Re: 2020 Budget 5.78% lower than 2016 budget???)

Dear Subscriber,

President Buhari presents job creation budget of N10.33trn to NASS

In the last 3years, FGN budgetary expenditure has been growing at an average of 12.7% compared to the average inflation rate of 13.57%. This means that after adjusting for inflation, Nigerian budgets have actually declined. If you go further to adjust for exchange rate depreciation, the decline gets more troubling. In effect, the budget expenditure in 2020 is approximately 5.78% lower than the actual budget in 2016.

Keynesian economics prescribes countercyclical spending as an orthodox stimulant for slowing economies. The 2020 budget is theoretically in deficit but could be a balanced budget, if you back out the Excess Crude Account (ECA) accruals.

Fiscal revenues likely to be impeded by declining oil prices

Revenue shortfalls have also plagued the efficiency of Nigerian budgets as an efficient tool of economic management. With increasing volatility in the oil markets, oil prices are projected to decline further. Three top oil traders Vitol, Trafigura and Grunvor are projecting a further decline in oil prices below the $57per barrel. Therefore, Nigeria could fall short of the projected revenue of N8.16trn. This creates a quandary as the government seeks to stimulate the economy while hoping to maintain a low debt service payout ratio.

CBN increases Loan-to-Deposit Ratio to 65% – Banks in jitters as IMF warns

According to the IMF, there is a need for coordination of policies between the various agencies in Nigeria, in order to reduce shock effects and achieve sustainable economic growth. The CBN’s loan-to-deposit ratio target for deposit money banks, which has now been raised to 65% by December, is expected to facilitate increased private sector lending and stimulate economic growth. However, it could have unintended consequences of a possible deterioration of the risk asset portfolio of banks.

In this edition of the FDC Monthly publication, the FDC Think-Tank analyzes these issues and their implications on businesses and the economy at large.

Enjoy your read.