Fiscal deficit in 2016 may exceed N2tr

Forex reserves fall to $29.6b
Estimated fiscal deficit in 2016, arising from revenue shortage and government’s ambitious plans to jump-start the economy may reach N2.2 trillion in contrast to the N1.08 trillion recorded in 2015.

But, with the proposed total expenditure package of N6.1 trillion for next year, representing 34.6 per cent increase in the N4.5 trillion budgeted in 2015, the fiscal plan will record 11.6 per cent rise in income.

Already, the N2.22 trillion expected deficit which has been estimated to be 2.2 per cent of the country’s Gross Domestic Product (GDP) put at about N100 trillion by September 2015, has paved the way for additional borrowing.

The Minister of Finance, Mrs. Kemi Adeosun, had indicated at the just concluded yearly retreat of the Bankers’ Committee, that the Federal Government would embark on borrowings in 2016, to finance capital projects that would bring dividends to the economy.

There are indications that the deficit would be majorly funded by domestic borrowings estimated at N1.22 trillion, representing 55 per cent of the total deficit, while foreign borrowings will account for N635.9 billion, representing 26.6 per cent. The balance of the fiscal shortfall is to be funded by “recoveries from misappropriated fund”, sale of government properties and privatisation proceeds.

A document which was sent to the National Assembly last week
showed an expansionary fiscal policy in 2016, in a bid to reflate the economy through investment in key infrastructures and social welfare spending, which the Central Bank of Nigeria has already towed. For example, 30 per cent of total expenditure plan put at N1.6 trillion, has been earmarked for capital expenditure, showing a clear departure from 2015 budget at 16 per cent of the total expenditure.

The non-debt recurrent expenditure and Statutory Transfers have been projected to decline by 6.5 per cent and 9.4 per cent respectively.

On the other hand, government’s retained revenue forecast increased by 11.7 per cent to N3.8 trillion for 2016, as oil is expected to contribute 18.6 per cent (N717.5 billion), against 47.5 per cent (N1.6tr) in the 2015 budget.
The nation’s external reserves slipped to a five-month low of $29.6 billion during the week, as oil price outlook remains bleak, with Brent crude falling below $40.0p/b.

A financial and investment research analyst, Ayodeji Eboh, said the government’s fiscal plan is to reduce recurrent spending and at the same time increase capital vote positively to achieve infrastructural development and inclusive growth.

“Nonetheless, the expenditure numbers appear a bit ambitious relative to revenue sources, given the lower oil revenue environment and deteriorating macroeconomic fundamentals that have weighed on company earnings and taxable revenues of companies and individuals already in the tax net.”

The CBN has unveiled plans to raise N1.22 trillion (about $6.13 billion) through Treasury Bills (T-Bills) issuance in the first quarter of 2016.

In a circular at its official website, the would auction N245.77 billion worth of 91-day bills and 238.51 billion naira worth of 182-day paper between December 17, 2015 and March 3, 2016.