The Nigerian Senate on Wednesday passed a 9.12 trillion naira ($29.8 billion) budget for 2018. The budget will be used to spur growth in the West African country’s economy and will cover the duration of nine months before the country’s imminent presidential election scheduled for next year.
The budget suggests the use of 2.2 trillion naira to service debts and would operate a deficit of 1.73 percent of gross domestic product this year. Prior to this development, President Muhammadu Buhari presented 8.6 trillion naira budget to the parliament in November last year. This is less than the overall amount indicated in the spending plan passed by the Senate. According to lawmakers, the budget increase is attributed to the assumed oil price rising to $51 per barrel, up from $45 in Buhari’s earlier budget version.
Though the budget has been passed by the Senate and the House of Representatives, it will need the approval of the Presidency before it can be signed into law.
In the second quarter of 2017, West Africa’s biggest economy emerged from its first recession in 25 years, expanding 0.55 percent year-on-year according to the National Bureau of Statistics (NBS). The growth was driven by an expansion in oil output as well as steady agricultural growth.
Meanwhile, according to World Bank’s bi-annual economic update released on Tuesday, 2 May, “the unemployment and underemployment rates increased in 2017; poverty is estimated to have increased, and spatial fragmentation and limited connections also hurt welfare and prospects for poverty reduction.” Economists expressed concern at the sluggish recovery, noting that it failed to drive a strong rebound in overall economic growth.
Speaking on the significance of the current budget to the country’s economy, Senate President Bukola Saraki said “We must grow our economy away from oil. Hopefully, the current budget, when signed into law, should help us in this regard.”
Crude oil production of 2.3 million barrels per day and an exchange rate of 305 naira per dollar was proposed in the budget. Commenting on the oil price benchmark, Olalekan Olabode, an economist at Lagos investment firm Vetiva Capital told Reuters “We still consider the oil price benchmark to be rather conservative given this year’s oil price outlook and would have preferred to see a steeper hike accompanied by lower borrowing.”
Implementation of Buhari’s spending plans in the past, which have been Nigeria’s largest ever, have been hindered by delays in passing budgets amid disputes between the executive and legislature.
“The implementation of fiscal policy is still weak and this year there is an additional risk of unproductive spending in the lead up to the election,” said Cobus de Hart, a senior economist at South Africa’s NKC African Economics.
Economists are of the opinion that implementation of spending plans has been poor under the current administration and failed to provide the type of capital expenditure needed to improve infrastructure.
Although Nigeria is a big home market, it is constrained by limited connective infrastructure that reduces producers and firms’ ability to reach wider markets. This lack of connectivity according to World Bank report, dampens economic collaboration and cooperation among regions in the country, as well as limiting market integration.