Eromosele Abiodun
The federal government has been advised to bolster non-oil revenue collection so as to be able to fund the projected deficit of N2.22 trillion ($11 billion) in the 2016 budget.
Minister of Budget and National Planning, Udoma Udo Udoma had recently disclosed that the Federal Executive Council had decided on a N6 trillion ($30 billion at current interbank rates) budget for 2016.
The federal government’s projected revenue is estimated at N3.82 trillion ($19 billion), implying a projected deficit of N2.22 trillion ($11 billion).
To this end, analysts reason that funding this deficit will be done via bolstering non-oil revenue collection as well as borrowing.
“Companies’ income tax (CIT) is a significant contributor to non-oil revenue. The rates may not be raised but we expect increased efforts, as with all taxes, to strengthen compliance,” said analysts at FBN Capital.
According to the analysts, the headline figure for total spending is significantly higher than N4.6 trillion approved for 2015.
They said: “The benchmark oil price was set at $38 per barrel, 28 per cent lower than the benchmark in 2015 of $53/b, and the foreign exchange rate at the CBN’s official rate of N198/US$. This is a very expansionary budget. We suspect it signals the government’s belief that the economy requires a jumpstart given the sobering gross domestic products (GDP) growth figures of late: 2.8 per cent year-on-year ( y/y) in Q3 2015.
“The assumption of average crude oil production of 2.2mbpd compares with 2.28mbpd in 2015 approved budget. This is an achievable target considering the recent strides the FGN has made in suppressing pipeline vandalism to ease production. We welcome the proposed allocation of N1.18 trillion ($9.1billion) for capital items, which represents 30 per cent of total spending, more than double the N700bn (15% of the total spending) released for capital projects for 2015. It should help towards bridging the country’s huge infrastructure gap. “
They added: “The government plans to spend N500 billion ($2.5 billion) on social welfare programmes to assist with poverty alleviation. While this is likely to prove controversial in some quarters, we recall it was a pledge the President made while campaigning during the elections. The new administration is said to favour borrowing from external partners on soft loan terms. That said, we see the risk that (domestic) rates will rise.
“The projected level of borrowing is not likely to exceed 3 per cent of GDP. For this year, the federal government’s deficit was projected at N755 billion or 0.79 per cent of estimated GDP. At this point, it is still unclear if the fuel subsidy would be retained in 2016, but given where oil prices are currently it is becoming easier to make a case to remove it. The International Monetary Fund (IMF) echoed similar sentiments very recently.”
