The 2019 budget and its assumptions   

Dec 19 (Lagos) - The President of the Federal Republic of Nigeria presented 2019 budget proposal in the National Assembly. The assumptions that the budget is based upon is something that should be looked at by investors because it does not seem realistic.

We want to highlight the areas where we feel the assumptions should be properly re-aligned with the ground reality of facts and figures. 

So The 2019 Budget proposal is based on the following assumptions, lets break it down one by one:

1.  Oil price benchmark of $60 per barrel;

Current Brent oil price is around $58 a barrel while the US Oil is around $47 barrel. So setting $60 as benchmark is a bit optimistic and should be revised downwards. If the price of crude oil goes higher next year, that will be a blessing for Nigerian economy but budget should not be based on assumptions of a blessing from crude oil market. 

2. Oil production estimate of 2.3 million barrels per day, including condensates;

Even now Nigeria is not producing at those levels. OPEC is asking member nations to cut output. Also considering the Niger-Delta situation and an election year, this estimate should be revised downwards to have a realistic view of numbers and not be over optimistic.

There are lingering issues in Niger-Delta that are likely to boil over in election season and cause disruptions like they did in 2015-16 where there were long queue's for Petrol. People in Lagos are already talking about coming fuel shortage hopefully they are wrong. 

3. Exchange rate of N305/$;

This one stands out in the list as the biggest problem in assumptions. USD exchange rate is 360 to 1 Dollar and not 305 so who are we fooling?

Businesses are already preparing for next round of devaluation post election which will see Naira trade at 400 or below to 1 USD. One of the reasons for that is a failure of the agriculture Policy to reduce forex loss for the exchequer. 

The truth about the agriculture sector is that more than 95% of rice in Nigeria today is smuggled rice coming in through poros borders from east, west and North. There is hardly any local production going on. It is just bagging of smuggled rice which is making it look like as if the rice is grown in Nigeria. 

Agriculture Policy is failing and sooner the Government realizes this a takes action, it will be better for economy of Nigeria. If you look at how much rice is imported in to Nigeria's neighboring countries and size of their respective populations, you will realize how the agriculture Policy is failing. 

All that forex for smuggled rice, tomato paste etc. is being sourced from parallel market so forex is still leaving Nigeria, only not at official rate. After elections, they will have to devalue the Naira. Therefore this assumption is laughable. 

4.  Real GDP growth of 3.01 percent;

Yes this number should be higher. It is not acceptable to expect only 3% GDP growth next year. We should be aiming for 6% or higher at minimum given the population explosion and the needs of people of Country. If we are growing at 3%, there is going to be extreme poverty and social equality issues in coming future. 

5.  Inflation Rate of 9.98 percent.

Again, this is a unrealistic assumption and will lead to wrong numbers and forecast. Inflation in Nigeria is very high (currently 11.28% because of base effects) because of the exchange rate situation. Least we can do is accept the numbers and work with them instead of taking wrong numbers as assumptions.

So those are the assumptions and if you think about it they seem more like a wish-list of what they would like to economy to be. 

This is not a political discussion so we don't want to be criticizing anybody but those numbers should  re-checked so we don't deceive ourselves. 

reporting for on Wednesday, Dec 19 2018 from Lagos, Nigeria
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