Economy anxiety trails FG’s late passage of N9.12trn 2018 budget

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The late signing of the 2018 budget has spurred apprehension among  analysts and investors. KAYODE TOKEDE seeks analysts’ views on its delayed implications… 

The National Bureau of Statistics (NSE) in its Gross Domestic Product (GDP) report in May said Nigerian economy has grown at a slower pace of 1.95 per cent in the first quarter of 2018 compared to 2.11 per cent recorded in fourth quarter of 2017.

Though the GDP data indicated that the country’s economy was 2.87 percentage points better than first quarter of 2017, a lull in activities in the non-oil sector caused the GDP to decline 0.16 per cent when contrasted with the 2.11 per cent growth achieved in the last quarter of 2017, which in nominal terms, brought aggregate GDP to N28.46 billion as at the end of March 2018.

The slower pace of economic growth was traced to -50 per cent moderation year-on-year in the non-oil sector to 0.7 per cent   in Q1 2018 on the back of substantial weakness in the agriculture, construction, trade and real estate sectors, which made 48.3 per cent of total real GDP, despite oil sector expanding at a faster pace of 14.7 per cent y/y, supported by an increase of 50,000 barrels per day (bpd) in oil production.

The National Assembly passed a N9.1 trillion budget for 2018 fiscal year on May 16 after the president submitted a N8.6 trillion budget to them on November 7, 2017. And some weeks after the passage of the 2018 budget, the president has not signed it into law.

The huge petroleum product subsidies that government has been paying, running to over a trillion naira, has also squeezed the country’s revenue. And as oil prices continue to rise, the gains the country is supposed to enjoy as increased revenue are being eroded by increased subsidy payment.

Strong weakness in the trade and real estate sectors stunted services growth, which contracted to -0.4 per cent in Q1 2018 instead of 0.1 per cent growth recorded in the prior period in 2017.

Despite the delay in the passage of the 2018, the nation’s inflation rate, according to NBS has continued to drop. NBS had announced 12.48 per cent inflation rate in April and expected to announce Inflation rate for May this week’s Wednesday.

However, analysts described the perpetual delay in passing Nigeria’s annual budget as a reflection of the weakness of institutions in the country.

Hitherto, the Monetary Policy Committee members of the Central Bank of Nigeria (CBN) in May were concerned on the effect of delay in the passage of the 2018 Appropriation could derail the programme and urged the federal government to sustain its implementation to further accelerate the economic recovery thus far achieved.

They however urged the government to set the machinery for the effective implementation of the 2018 budget to further stimulate the economy.

The delay in the passage and signing of the 2018 budget, which President Muhammadu Buhari presented to the National Assembly in November 2017 and usual lull in economic activities in the first three months of the year, adversely impacted on the performance of the economy in Q1 2018, argued Johnson Chukwu, Managing Director, Cowry Assets Management Company Ltd.

He also identified fear by investors over the forthcoming elections for another reason  Nigeria expanded at a slower rate in the first three months of 2018.

“The economy is being hurt by the unnecessary high-interest rate. For almost two years, the monetary policy rate has been pegged at 14 per cent.

“The government thinks it can achieve much with the sectoral targeted approach it is using to grow the economy. But from all indications, it is not working,” posited Professor Adi Bongo, faculty member, Lagos Business School.

The government has released N1.2 trillion for capital expenditure in the 2017 budget as at March 2018, but its impact has been minimal on the economy because many contractors spent they got to offset their obligations to their creditors.

“Nigeria’s first quarter real GDP growth came in at 2.0 per cent y/y, well below our expectation of 3.4 per cent y/y. Although the oil sector performed well and grew at 15 per cent, growth in the non-oil sector was very weak, registering at 0.8 per cent as the service surprisely slipped back to negative growth territory.

Whilst the overall positive growth is welcome, the under-performance of the non-oil sector showed Nigerian economy is not out of the woods,” noted Michael Famoroti, Chief Economist, Vetiva, an investment bank.

The manufacturing sector maintained its growth momentum in the first three months of 2018, accelerating to its highest levels in 3 years at 3.3 per cent from 0.1 per cent at the end of 2017. This growth was spurred by improved FX liquidity and sustained exchange rate stability, which has been supportive of manufacturing output. Food, beverage, and tobacco was the outperformer, with the sector expanding at a faster pace of 5.4% y/y (Q4’17: 2.1% y/y). Similarly, fast-paced growth was recorded in the cement sub-sector (5.2% y/y).

Meanwhile, PwC, a financial advisory firm, restated its forecast that the Nigerian economy will grow two per cent in 2018, strongly supported by continued stability in the oil sector due to stable oil production and high prices. “Similarly, we believe a recovery in the non-oil sector is crucial to achieving our growth target, particularly in agriculture and services. We are optimistic of a strong performance in agriculture in H2’18, driven by increased crop production activities tied to the harvest season. However, we note that weakness in the livestock sub-sector could linger for longer due to the poor management of climate change impacts in the short-term. In the services sector, we expect that the broad improvements in the macro environment will eventually filter through to the consumer, with an upside potential from a meaningful boost in pre-election spending,” Dr. Andrew Nevin, Chief Economist, PwC led -team of economists said in the firm’s Q1 2018 GDP report.

More so, the International Monetary Fund (IMF) has predicted that Nigerians’ real income per head will continue to drop every year until at least 2023, adding that this will have a serious hit on the people. Nigeria’s population is projected to reach 400 million by 2050 with an annual growth of three per cent, which will make it the third most populous country, only behind India and China. But of concern to many is the fact that the economy is currently growing below 2 per cent.

Something needs to be urgently done to address the challenge rising population poses to the country in the face of bulging unemployment rate in Nigeria, said Director, Risk Management, Central Bank of Nigeria, Mrs. Folakemi Fatogbe.

The optimism that the government would upscale fiscal spending on infrastructure development once the budget is signed into law as part of its efforts to win the goodwill of the people as the country approaches 2019 general elections.

 

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