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   2017 Budget: Too little or too large?

      

Dec 23 (Lagos) - The 2017 draft budget submitted to the Joint Assembly falls in line with the countercyclical fiscal policy stance of the present administration. Proposed increase in expenditure (20%) and revenue (28%) reflect a renewed desire to reflate the economy in light of a more positive fiscal outlook on the back of expected higher oil earnings. Whilst the Federal Government (FG) will hope that size translates directly into impact, it is important to assess just how large the 2017 budget is as we draw a line between optimism and hope. Here is our attempt to gauge the true size of the budget.


Accounting for inflation



Nominal projected expenditure in 2017 is 20% greater than the budgeted amount for 2016, an identical change between the overall 2015 budget (including supplementary) and 2016 budget. But in real terms (2016E average inflation: 15.6%), projected expenditure is only 4% greater, also marginally in line with the increase between 2015 and 2016. Meanwhile, whilst 2017 revenue is expected to grow by 28% in nominal terms, real growth is estimated at 11%. This is significant as it will be the first real growth in budgeted revenue since 2013, which documented a mere 1% year-on-year increase in real revenue. This lends credence to the view that the 2017
revenue target is somewhat ambitious.



Dollar expenditure marginally lower than gross external reserves



Looking at the budget in dollar terms shows the effect of naira depreciation. Expected expenditure is $24 billion, a 22% fall from 2016 and lower even than current level of gross external reserves ($25 billion). 



Likewise, 2017 figures are lower than 2016 figures across all key line items. This is relevant as 40% of government revenues are expected to come from oil in 2017 (compared to 21% in 2016) which means that dollar earnings are crucial and provide a fair way of assessing the budget. On this view, with total revenue (in dollar terms) projected to be the lowest in our six-year review period ($16 billion) – largely due to depreciation, the charge of an overambitious revenue
target looks weaker. That said, the FG must continue to work with relatively low oil prices ($42.50 per bbl in 2017 vs $79 per bbl in 2014) though Naira depreciation cushions the effects on earnings. Moreover, the size of dollar earnings depends on whether oil production target (2.2 mbpd) is met.





reporting for easykobo.com Dec 23 2016 from Lagos, Nigeria




Source - analysts at ARM SECURITIES LIMITED. THIS PUBLICATION IS COPYRIGHT OF ARM SECURITIES LIMITED AND NOT TO BE REPRODUCED OR REPRINTED IN ANY FORM WITHOUT THE EXPRESS PERMISSION OF ARM SECURITIES LIMITED. WWW.ARMSECURITIES.COM



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