National Assembly Readies 2016 Budget for Passage

This week saw more news flow regarding the status of the 2016 budget, NNPC restructuring plans and the CBN’s short to mid-term monetary policy objectives. The Joint National Assembly Committee on Appropriation on Tuesday assured that the budget would be passed on the 17th of March after earlier controversies regarding the authenticity of the document submitted by the Presidency led to the breach of the initial deadline of 26th February, leaving the current fiscal year without appropriations. We do not expect significant deviation in the Appropriation Bill to be passed from the proposed spending plans submitted by the Executive. The APC still retains a sizeable majority in the National Assembly and legislators’ from the party will likely toe party line. The Chairman of the senate committee did suggest that the N500.0bn intervention program proposed in the Budget be postponed till next year due to weak structures to implement the intervention strategies. Yet, we expect the component to sail through owing to its political expediency.

We are fairly optimistic on the implementation of the budget despite weak oil revenues. Assuming the FGN’s share of January FAAC allocation is maintained over the next 11 months, FGN retained revenue from Federation Account would come to N1.7tn. Federation account revenue typically accounts for 70.0% - 80.0% of aggregate FGN retained revenue while Independent Revenue (operating surpluses from MDAs) accounts for the rest. Unconfirmed reports have put the total savings from Treasury Single Account (TSA) at N2.9bn but the Minister of Finance at her briefing in the Senate yesterday indicated that the volume of transactions in the account does not imply current net balance, while all the money saved in the TSA was not meant for funding the budget. Regardless, if efforts to improve transparency and accountability of MDAs yield result, the N1.8tn estimated to be raised from Independent sources could be achieved. These makes retained revenue target of N3.9tn estimated to fund the budget less optimistic.

However, obtaining foreign borrowings from multilateral sources (up to N900.0bn) to partially fund the N2.2tn deficit would still require some adjustments to domestic macroeconomic policies to align with external sector realties. The CBN’s Deputy Director of Financial System Surveillance, who also spoke at the Senate briefing gave a cue of the CBN’s likely course of action to stabilise the external sector, suggesting liquidity mop-up’s will be conducted after the 2016 budget is passed to stabilize the domestic currency. This may not be enough to stimulate foreign capital flows and improve the capital account if current account is not stabilized by both short term flexibility in exchange rate management and medium term efforts to boost real sector productivity.

This week also, the Minister of State for Petroleum, Mr. Ibe Kachikwu announced the plan of the government to unbundle the Nigerian National Petroleum Corporation (NNPC) to create 30 spin-off companies for efficiency and increased revenue. We view the strategic reforms at the NNPC positive in terms of improving competitiveness of the domestic oil & gas industry and putting it in better stead for profitability.