By MICHAEL EBOH
Nigerians should brace up for tough and unfavourable economic conditions in the year 2012 and beyond, says economists, financial analysts and operators in the Nigerian financial market.
This is in reaction to the budget proposal for the year 2012, presented last week by the Federal Government to the National Assembly.
According to the analysts who spoke to Vanguard, Nigerians should expect increased government borrowing at the detriment of the real sector, high interest rate, further decline in the naira exchange rate and high inflation rate among others in the coming year.
According to an economic analyst, Mr. Opeyemi Agbaje, who is also Managing Director, Resource and Trust Company Limited, with the President making no provision for oil subsidy in the budget, it is evident that he seeks to pursue the subsidy removal policy.
To this end, he predicted that 2012 is likely to be tough and inflationary, given the tough structural policies enunciated.
In his own view, Mr. David Adonri, Chief Executive Officer, Lambeth Trust and Investment Company Limited, said the reduction in fiscal deficit is insignificant and that it will engender a significant increase in government borrowings which will lead to the crowding out of the productive sector of the economy from the debt market.
Speaking further, he said, “Reduction in fiscal deficit is insignificant. Expectations were high before presentation of the appropriation bill, that Federal Government’s share of savings from removal of fuel subsidy will be used to drastically reduce the budget deficit.
“Since the deficit is not likely to be financed by ways and means, then, government’s borrowing at any price will continue next year with implication of continued crowding out of the productive real sector.
“The current high interest rate which has taken debt finance in the economy to dangerous levels will certainly persist next year to the detriment of equity capital formation that the economy is in dire need of.
“The paltry increase of allocation to investment via capital expenditure cannot sow the seed for transformation of this economy in the foreseeable future. To force down recurrent expenditure, very stern and radical measures must be taken by the fiscal authorities.
“As it stands, the budget is geared towards sustaining consumption which the domestic productive capacity cannot satisfy due to weak engineering infrastructure base. In an uncertain global economic environment, the expansionary budget with its high debt content is likely to pile more pressure on the exchange rate next year and possibly derail attainment of the single digit inflation rate target.
“In scrutinizing the budget proposal, the National Assembly is advised to adopt a conservative approach by pruning down the excessive recurrent expenditure.”
Mr. Taiwo Oderinde, National Coordinator, Proactive Shareholders Association of Nigeria, PROSAN, lamented the huge amount budgeted for recurrent expenditure.
He queried the rationale behind the planned removal of subsidy when the Federal Government is not making effort to cut down the recurrent expenditure profile of the country.
He said, “How can more than 70 per cent of the budget be expended on recurrent expenditure. How can such huge amount be budgeted for salaries, bonus, allowances and other expenses of public officers?
“If the Federal Government is concerned about the economy, it should make effort to cut down on the allowances of public officers. The huge amount expended on National Assembly members and the executive should also be reviewed instead of concentrating on removal of fuel subsidy.
Oderinde said the 2012 budget will cause untold hardship for the masses, adding that a realistic budget only allows for 40 or 45 per cent of recurrent expenditure in the budget.
He noted that only a dummy will support the proposed budget, predicting that a number of protests will emerge next year against the budget if it is eventually passed.
Mr. Seye Adetunmbi, Chief Responsibility Officer, Value Investing Nigeria expressed skepticism on the budget, saying that there is not much to show that there will be a radical departure from the way the affairs of Nigerians are managed come 2012.
“We can only keep hope alive. If the subsidy eventually goes, funds saved or recovered just have to be judiciously managed such that the lot of Nigerians will not be worse.”
In their review of the budget, researchers at FBN Capital Limited, the investment banking arm of the First Bank Group, said, “draft does reduce recurrent expenditure’s share of total expenditure by two percentage points to 72 per cent, and the medium-term objective is a share of 70 per cent.
“These are necessarily slow steps to boost the capital budget because the already heavy bill for wages was swollen by generous pre-election increases in 2010 and has risen again as a result of the new minimum wage legislation.
“The main underlying assumptions are plausible in our view. The growth forecast of 7.2 per cent makes allowances for the global headwinds which are yet to have a marked impact on Nigeria. The moment of truth will be the release of the GDP data for the fourth quarter, which is traditionally the strongest of the year. Growth reached 8.4 per cent in fourth quarter 2010.
Commenting also, David Adonri, the Managing Director of Lambert Securities Limited said: “Although the budget proposal for 2012 does not inspire sufficient hope that through it, the economy will achieve non-inflationary growth that will be beneficial to the equities market, however, the vote for security is commendable and indicative of government’s preparedness to tackle the security challenges threatening the nation’s stability.”
Agbaje also declared that the reduction in recurrent spending in favour of capital expenditure by two per cent, though marginal, is a step in the right direction.
“The reality is that you cannot effect a radical reduction in recurrent expenses without a massive restructure of the public service.
“There are other positive aspects of the budget-reduction in deficit; focus on agriculture with interest subsidies, zero duty on agricultural equipment, and other sensible policies. The commitment to Power reform is also positive. All, however, depends on political will and anti-corruption,” he added.