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FG Plans N8.9tn Budget for 2019

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  • FG Plans N8.9tn Budget for 2019

The Federal Government is planning to spend a total of N8.9tn in the 2019 fiscal period.

The amount is an increase of N305.86bn over the original estimates of N8.61tn presented to the legislature on November 7, 2017 by President Muhammadu Buhari for the 2018 fiscal year.

However, the planned N8.9tn spending will be about N220bn lower than the N9.12tn 2018 budget, which was passed by the National Assembly and assented to by the President.

The government is also planning to raise a total of N6.32tn as revenue next year to finance the budget.

The N6.32tn, when compared to the N7.16tn revenue projection approved for the current year, represents a decline of about N840bn.

The figures are contained in the Fiscal Strategy Paper of the Federal Government, which was obtained by our correspondent from the Budget Office of the Federation in Abuja.

The document showed that as a result of the planned increase in spending, the fiscal deficit of the government was expected to rise from the current N1.9tn to N2.59tn in 2019.

Further analysis of the document showed that the ratio of the country’s deficit to Gross Domestic Product was estimated to be at 2.08 per cent by next year.

It was also revealed that capital expenditure as a percentage of non-debt expenditure had been estimated at 41.28 per cent for 2019.

In the same vein, capital expenditure as a percentage of the total Federal Government spending is expected to drop from 31.5 per cent this year to 29.57 per cent next year, while recurrent expenditure as a percentage of government spending is being planned to rise from 68.5 per cent to 70.43 per cent.

Further analysis showed that debt service to revenue ratio might rise from this year’s rate of 30.76 per cent to 36.53 per cent in the 2019 fiscal year, while deficit as a percentage of the total Federal Government revenue might increase from 27.22 per cent to 40.95 per cent.

Oil production volume, according to the document, is expected to rise from 2.3 million barrels per day to 2.4 million barrels per day, with the budgeted oil benchmark price pegged at $50 per barrel.

In terms of revenue that will be available to fund the expenditure, details of the N6.32tn projected revenue showed that oil was expected to generate N3.24tn next year as against the budgeted N2.98tn for the current year.

On the other hand, non-oil revenue is expected to contribute N1.55tn next year as against the N1.24tn budgeted for this year.

A breakdown of the N1.55ttn non-oil revenue showed that N906.1bn is expected to be collected as Companies’ Income Tax compared to the 2018 budgeted amount of N658.5bn, while N264.1bn is expected to come from Value Added Tax as against N207.51bn projected for this year.

The Nigeria Customs Service, according to the document, is expected to provide the sum of N324.25bn for the Federal Government next year, which is marginally lower than the N324.86bn set for the agency for 2018.

Other sources of revenue to finance next year’s budget, according to the document, are independent revenue, which is projected at N890.34bn as against N847.94bn for this year; and special levies of N12.9bn as against N17.21bn in the current fiscal period.

In the same vein, the sum of N203.37bn is expected to be raised through domestic recoveries, assets and fines as against N374bn this year.

Similarly, about N168.97bn is being planned to be realised from other recoveries in 2019 compared to N138.43bn for the current year.

Grants and donor funding are expected to contribute N209.9bn to government’s revenue next year as against the N199.9bn captured in the 2018 budget.

On the expenditure side, the strategy document stated that out of the projected N8.9tn spending, N2.38tn would go for capital expenditure next year, as against N2.42tn for this year.

Debt service is expected to gulp N2.31tn next year as against N1.95tn this year, while N3.16tn is projected to be spent on recurrent expenditure (non-debt) as against N3.51tn provided in the current year’s budget.

Other projections for the 2019 fiscal year are personnel costs of N2.1tn; overheads, N210bn; pensions, N220bn; Power Sector Reform Programme, N251.4bn; service wide votes, N208.6bn; and the Presidential Amnesty Programme, N70bn.

Finance and economic experts said that in view of the fact that oil prices had been on the upward trend coupled with the aggressive tax revenue drive of the Federal Government, implementing a budget size of N8.9tn would not be too difficult.

The Registrar, Institute of Finance and Control of Nigeria, Mr Godwin Eohoi, stated, “It will be possible to finance the budget, because looking at the oil price, it was at $50 to a barrel when the 2018 budget was presented, but now it’s selling far above $70 per barrel.

“So it is still within acceptable limit to have the benchmark at $50 per barrel.

“There are other windows available to the government to generate more revenue, considering the aggressive drive to raise tax revenue from six per cent of the Gross Domestic Product to 15 per cent; so, I think the budget is implementable by the government.”

A developmental economist, Odilim Enwagbara, said the size of the Federal Government’s budget was still low compared to the country’s GDP size.

He noted that for the budget to make any significant impact, it must be raised to about 10 per cent of the GDP.

Enwagbara stated, “We should also raise the oil benchmark price to $80 per barrel to enable us deploy more revenue to fund the budget. The budget should be increased further to about 10 per cent of our GDP, because we have one of the lowest budgets in the world.

“When South Africa is budgeting about $200bn, Nigeria is having about $28bn budget for the year; this is very low for us as a country.”

A former Director General, Abuja Chamber of Commerce and Industry, Chijioke Ekechukwu, said the budget figure could be absorbed by the expected revenue from oil and other sectors.

He explained, “This revenue expectation does not obliterate the deficit end of the budget, which will still be funded by debts. Much as the debt profile of Nigeria is rising every day, the debt to GDP ratio is still not above any tolerable benchmark.

“As far as the increase is not arising from indiscriminate and arbitrary increase for selfish gains, the budget will be implementable.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Economy

Nigeria’s Inflation Rises to 34.19% in June Amid Rising Costs

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Food Inflation - Investors King

Nigeria’s headline inflation rate surged to 34.19% in June 2024, a significant increase from the 33.95% recorded in May.

This rise highlights the continuing pressures on the nation’s economy as the cost of living continues to climb.

On a year-on-year basis, the June 2024 inflation rate was 11.40 percentage points higher than the 22.79% recorded in June 2023.

This substantial increase shows the persistent challenges faced by consumers and businesses alike in coping with escalating prices.

The month-on-month inflation rate for June 2024 was 2.31%, slightly up from 2.14% in May 2024. This indicates that the pace at which prices are rising continues to accelerate, compounding the economic strain on households and enterprises.

A closer examination of the divisional contributions to the inflation index reveals that food and non-alcoholic beverages were the primary drivers, contributing 17.71% to the year-on-year increase.

Housing, water, electricity, gas, and other fuels followed, adding 5.72% to the inflationary pressures.

Other significant contributors included clothing and footwear (2.62%), transport (2.23%), and furnishings, household equipment, and maintenance (1.72%).

Sectors such as education, health, and miscellaneous goods and services also played notable roles, contributing 1.35%, 1.03%, and 0.57% respectively.

The rural and urban inflation rates also exhibited marked increases. Urban inflation reached 36.55% in June 2024, a rise of 12.23 percentage points from the 24.33% recorded in June 2023.

On a month-on-month basis, urban inflation was 2.46% in June, slightly higher than the 2.35% in May 2024. The twelve-month average for urban inflation stood at 32.08%, up 9.70 percentage points from June 2023’s 22.38%.

Rural inflation was similarly impacted, with a year-on-year rate of 32.09% in June 2024, an increase of 10.71 percentage points from June 2023’s 21.37%.

The month-on-month rural inflation rate rose to 2.17% in June, up from 1.94% in May 2024. The twelve-month average for rural inflation reached 28.15%, compared to 20.76% in June 2023.

The rising inflation rates pose significant challenges for the Central Bank of Nigeria (CBN) as it grapples with balancing monetary policy to rein in inflation while supporting economic growth.

The ongoing pressures from high food prices and energy costs necessitate urgent policy interventions to stabilize the economy and protect the purchasing power of Nigerians.

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Economy

Inflation to Climb Again in June, but at a Reduced Pace, Predicts Meristem

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Nigeria's Inflation Rate - Investors King

As Nigeria awaits the release of the National Bureau of Statistics’ report on June 2024 inflation, economic analysts project that while inflation will continue its upward trajectory, the pace of increase will moderate.

This comes after inflation rose to a 28-year high of 33.95% in May, up from 33.69% in April.

Meristem, a leading financial services company, has forecasted that June’s headline inflation will rise to 34.01%, a slight increase from May’s figure.

The firm attributes this persistent inflationary pressure to ongoing structural challenges in agriculture, high transportation costs, and the continuous depreciation of the naira.

Experts have highlighted several factors contributing to the inflationary trend. Insecurity in food-producing regions and high transportation costs have disrupted supply chains, while the depreciation of the naira has increased importation costs.

In May, food inflation grew at a slower pace, reaching 40.66%, but challenges in the agricultural sector, such as the infestation of tomato leaves, have led to higher prices for staples like tomatoes and yams.

Meristem predicts that food inflation will persist in June, driven by these lingering challenges. Increased demand during the Eid-el-Kabir celebration and rising importation costs are also expected to keep food prices elevated.

Core inflation, which excludes volatile items like food and energy, was at 27.04% in May. Meristem projects it to rise to 27.30% in June.

The firm notes that higher transportation costs and the depreciation of the naira will continue to push core inflation up.

However, they also anticipate a month-on-month moderation in the core index due to a relatively stable naira exchange rate during June, compared to a more significant depreciation in May.

Cowry Assets Management Limited has projected an even higher headline inflation figure of 34.25% for June, citing similar concerns.

The firm notes that over the past year, food prices in Nigeria have soared due to supply chain disruptions, currency depreciation, and climate change impacts on agriculture.

This has made basic staples increasingly unaffordable for many Nigerians, stretching household budgets.

As inflation continues to rise, analysts believe the Central Bank of Nigeria (CBN) will likely hike the benchmark lending rate again.

The CBN’s Monetary Policy Committee (MPC) has raised the Monetary Policy Rate (MPR) by 650 basis points this year, bringing it to 26.25% as of May 2024.

At a recent BusinessDay CEO Forum, CBN Governor Dr. Olayemi Cardoso emphasized the MPC’s commitment to tackling inflation, stating that while the country needs growth, controlling inflation is paramount.

“The MPC is not oblivious to the fact that the country does need growth. If these hikes hadn’t been done at the time, the naira would have almost tipped over, so it helped to stabilize the naira. Interest rates are not set by the CBN governor but by the MPC committee composed of independent-minded people. These are people not given to emotion but to data. The MPC clarified that the major issue is taming inflation, and they would do what is necessary to tame it,” Cardoso said.

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Economy

Nigeria Faces Fuel Crisis with Petrol Costs Surging to N978/Litre

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Petrol - Investors King

Nigeria is grappling with a severe fuel crisis as the landing cost of Premium Motor Spirit (PMS), commonly known as petrol, has skyrocketed to N978 per litre.

This surge, driven by a depreciating naira and rising international costs, has led to widespread fuel shortages and long queues at filling stations across the country.

The latest figures reveal that the landing cost—which includes the international price, shipping, insurance, and other charges—has increased from N720 per litre in October 2023.

This escalation is attributed to the naira’s depreciation, which hit a three-month low of N1,530 per dollar on the parallel market this week, exacerbating the already dire economic situation.

“The rising landing cost of petrol is a result of the escalating foreign exchange (FX) crisis. There are market interventions through subsidies, as most Nigerians cannot afford the market price for petrol,” a senior executive in the downstream sector explained.

Despite the federal government’s denial of an ongoing subsidy, a report from the finance minister, Wale Edun, projected that fuel subsidies could cost about N5.4 trillion in 2024, up from N3.6 trillion in 2023.

The fuel scarcity has led to black market prices soaring between N1,000 and N1,100 per litre, while some retail outlets in Abuja, Nasarawa, and Niger have hiked pump prices to N900 per litre.

Motorists have been forced to spend hours in queues, further straining their daily lives.

NNPC Limited attributed the current fuel queues to recent thunderstorms and logistical challenges disrupting activities at fuel-loading jetties.

The company assured stakeholders that it is working to resolve the situation and clear the queues.

“We have no problem covering our gasoline payments. This is just money for normal business and not a desperate act,” said Mele Kyari, the group’s general manager.

He also mentioned that NNPC is considering securing a $2 billion loan using crude oil pre-payments as collateral to support its business activities.

Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies, noted, “The government is partially subsidizing the commodity for political, social, and economic reasons. While economically sound, the social and political costs are significant.”

Market analysts have called for a review of dollar-based fee collections to reduce petrol costs. “We must resist the dollarization of the Nigerian economy. There are some fee collections in dollars that are also pushing up the landing cost of petrol,” a source said.

The Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) confirmed that NNPC is addressing the supply issues, but warned that the queues might persist for days, especially in locations far from major depots.

“Once they start loading, it takes some days to clear the queues. And don’t forget that filling stations in Abuja get products from Lagos, Oghara, Warri, Port Harcourt, or Calabar, and that takes more than three days turn-around time to accomplish,” said PETROAN president Billy Gillis-Harry.

He said there is a need for collaboration between the government, NNPC, and downstream operators to find a lasting solution to the fuel scarcity.

“We need a clearly defined council with grassroots knowledge of the business to project and address problems based on empirical evidence,” he stated.

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