After seeing its economy shrink 1.5 % in 2016, Nigeria’s big spending budget hopes to reverse that trend. Boasting its largest budget in a decade, the 2017 budget boosts spending by 21 per cent. As a share of GDP the current budget rises to 10.72% from 9.26% last year. Both figures represent significant declines from peaks of 17% of GDP in 2011.
Oil revenues (41 %), corporate tax (16 %) and proceed from the sales of government assets (16 %) are expected to mainly finance the 7.4 trillion Naira budget ($23 billion USD).
The bulk of the spending will go to government programs, debt servicing and capital expenditures. Meanwhile, the ministries of interior, education, defense and health will receive the largest budgetary program allocations.
A review of departmental line items highlights departmental spending has not been as efficient as possible. For instance, the Ministry of Justice’s request of over 600 % increase in office stationary raises eyebrows.
With revenues only expected to be 4.9 trillion Naira, a large deficit of 2.4 trillion Naira is included.
Nigeria has been relying more and more on deficits over the past few years to finance its budgets, with the 2017 deficit the largest in over a decade. The deficit as a percentage of GDP remains extremely elevated at 32%; in comparison, South Africa’s 2016 budgetary deficit came in at 3 %. Reduced oil revenues in the future may lead to larger and more sustained deficits.
Nigeria’s external debt stock has been growing rapidly over the past few years. In 2011, external debt was 5.4 billion USD. This figure doubled to 10.3 billion USD by 2015. Concerns have grown over Nigeria’s large deficits and public debt levels, especially in light of reduced commodity exports. Recently, the IMF raised the issue as oil exporting countries in sub-Saharan Africa have seen their median debt levels rise from 34% of GDP in 2013 to 48% currently. Transparent disclosure of debt levels was another concern as Mozambique was found to have defaulted on$2 billion USD of “secret” loans to finance non-existent tuna fishing fleet.
Currently, Nigeria’s debt stock remains at 13.8 billion USD.
The government will hope that its current fiscal expansion does not raise inflation above its current levels as ordinary Nigerians have increasingly felt the impact of high prices.
Inflation has soared in Africa’s biggest economy, with prices rising 16.1 % in June 2017. Food prices have also risen sharply, growing 19.9 %.
Additionally, the government will need to ensure that the increase in spending solves Nigeria’s high unemployment levels. At the end of 2016, unemployment stood at 14.2 percent of the population of the country’s 186 million people.
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