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80% of Nigeria's budget to come from oil
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Nov 9, 2007 - 9:29:35 AM

The 2008 budget of the Federal Government has been based on a presumed exchange rate of N117 to US$1, although the current official rate is N122.

Presenting his first budget - which has a deficit of N0.56 trillion - to a joint session of the National Assembly yesterday, President Umaru Musa Yar'Adua projected a total revenue of N1.986 trillion, 80 per cent of which will come from crude oil sales.

This conservative dollar benchmark drew favourable views yesterday.

The 2007, 2006 and 2005 budgets were pegged at N125/1$, N128/1$ and N133/1$ respectively.

Managing Director, Financial Derivatives, Mr. Bismark Riwane, noted that this is a good development because "the fundamentals in the Nigerian economy suggest that the naira is much stronger than what currently prevails."

Managing Director, Econs Associates, Dr. Ayo Teriba also described the development as "commendable and conventional."

He said the N117 per one United States' dollar for the 2008 budget would prevent the Federal Government from running an additional deficit in its 2008 budget as it will allow more funds to be set aside.

Commenting on this development, Minster of State for Finance, Mr. Remi Babalola, told THISDAY last night that the benchmark was deliberated upon several times by the Presidency, was actually presented by the Central Bank of Nigeria (CBN).

"The higher the figure (naira exchange rate), the better for us on the fiscal side. But since the CBN's primary responsibility is to maintain inflation, price and exchange stability, we had to work with the figure they submitted because it is believed that if the economy is growing certain percentage of the currency should also be appreciating.

At the presentation of the Appropriation Bill 2008 to the federal lawmakers yesterday, President Yar'Adua said out of a total of N1.98 trillion projected expenditure, security and Niger Delta would get the largest chunk of N444.6 billion, representing 20 per cent of the total budget, up 6.5 per cent from 2007 allocation.

Education got N210 billion or 13 per cent of the total Ministries, Departments and Agencies (MDAs) spending, while energy sector, excluding National Integrated Power Projects which the President said will be implemented through alternative funding, got N139.78 billion. Seven per cent of the total MDA budget - or N121.1 billion - will go to Agriculture and Water Resources.

The President said under the Paris Club Debt settlement, and in pursuit of the attainment of the Millennium Development Goals (MDGs), the 2008 budget will devote the entire debt relief gains, amounting to N110 billion, to carefully selected poverty reduction initiatives and programmes in Education, Agriculture, Water Resources, Power and Social Safety Nets.

The budget, which he said was prepared within the context of a Medium-Term Fiscal Framework which takes account of the forecast revenue and expenditure for the period 2008-2010, is informed by the need to be "disciplined, focused and strategic", while placing emphasis on containing costs to enhance value for money.

Yar'Adua explained that the 2008 budget builds upon and consolidates past macroeconomic and budgetary reforms. "It gives priority to, and makes ample provision for, improving physical infrastructure, particularly power and transportation, human capital development, the Niger Delta, and social safety nets. These are all encapsulated in the Seven-Point Agenda of this Administration," he told the federal lawmakers.

The key targets of the 2008 budget, the President disclosed, are based on a number of assumptions and it is driven by the need to meet certain targets. These are: Oil price of $53.83 per barrel, Crude oil production of 2.45 million barrels per day, Joint Venture Cash Calls of US$4.97billion, GDP growth rate of 11%, inflation rate of 8.5% and, Exchange rate of N117 to US$1.

Yar'Adua also told the National Assembly that the budget was based on a "prudent benchmark" price of US$53.83 per barrel to ensure that Nigeria funds the budget with predictable revenues, whilst ensuring that the benchmark price remains realistic.

Crude oil price is currently $98, although experts project it will hit the $100 mark soon.

On projected revenue for 2008, President Yar'Adua, said government expects the sum of N4.539 trillion to accrue to the Federation Account. "This represents an increase of 5.5 per cent over 2007. Oil Revenue is estimated at N3.629 trillion after taking account of existing commitments to Joint Venture Cash Calls of N0.581 trillion, while Non-Oil Revenue is estimated at N0.91 trillion. Oil Revenue represents 80 per cent of the total estimated revenue, while Non-Oil Revenue represents 20 per cent.

"We will continue to diversify our revenue base by further development of the non-oil sectors of our economy which are estimated to grow by 10 per cent in 2008," he said.

On oil revenue, he said of the total N4.210 trillion government expects from that sector Crude Oil Sales are expected to contribute N2.345 trillion, as against N1.6 trillion in 2007; while Petroleum Profits Tax is estimated at N1.282 trillion compared to N1.78 trillion in 2007; with Royalties and Rents accounting for N0.583 billion as against N0.532 billion in 2007.

Of the sum of N0.91 trillion expected to accrue to the Federation Account from Non-Oil Revenue made up of Companies' Income Tax, Value Added Tax and Customs & Excise Duties, Companies' Income Tax is expected to account for N349 billion, as against N299 billion in 2007; Value Added Tax should contribute N310 billion, as against N265 billion in 2007; while Customs & Excise Duties should account for N251 billion, as against N230 billion in 2007.

Yar'Adua said the revenue accruable to the Federal Government from the Federation Account for 2008 is estimated at N2.026 trillion. Of this sum, the actual amount accruable to the Federal Budget will be N1.866 trillion as against N1.7 trillion in 2007. "This is arrived at after deducting amounts that should go to the Derivation and Ecology Fund (N38billion), Stabilization Fund (N19billion), Development of Natural Resources (N63billion), and the FCT (N41billion)," he said.

Independent Revenue, which is made up of revenues that accrue exclusively to the Federal Government from the operating surpluses and dividends of commercial enterprises, is expected to be N120 billion.

"Our estimate of total revenue available to fund the 2008 Budget is therefore N1.986 trillion," he said.

The proposed aggregate expenditure, he said, is made up of the following: Statutory Transfers: N187.6 billion, Debt Service: N372.2 billion, Spending by MDAs: N1.89 trillion "Given the estimated total revenue available to fund the federal budget, we plan a deficit of N0.56 trillion or 2.5% of GDP which will be financed from the proceeds of the sale of government properties, Oil Blocks Signature Bonus, privatisation proceeds and domestic borrowings," he said.

The details of the expenditure heads are as follows.

On statutory transfers, National Judicial Council (NJC) will get N78 billion as against N43 billion in 2007; Niger Delta Development Commission (NDDC), N69.9 billion as against N24 billion in 2007; Universal Basic Education Commission (UBEC), N39.7 billion as against N35.3 billion in 2007.

On debt service, government has proposed the sum of N372.3 billion for 2008, representing an increase of 25.3 per cent relative to 2007. This is made up of domestic, long-term debt service of N306.2 billion and foreign debt service of N66 billion.

On domestic debt, he said the overall increase in debt service requirement for 2008 relative to 2007 is reflective of the increase in the domestic debt stock in 2006-2007.

"These include N86 billion of pension arrears and N105 billion of arrears owed to local contractors. In addition, N200 billion of domestic borrowing was required to finance the 2007 Budget. The domestic debt stock is expected to reach N1.9 trillion by the end of this year. This figure represents an increase of N285 billion due principally to the clearance of contractor and pension arrears, amounting to N105 billion and N86 billion, respectively. The cost of servicing domestic public debt is estimated at N306.2 billion in 2008. Based on our strong fiscal position, government intends to remain active in the debt market," he said.

On external debts, the President said since Nigeria's successful exit from the Paris Club debts, the structure of the nation's external debts has changed significantly. "Our total foreign debt stock now stands at US$3 billion, down from about US$32 billion in 2005. I am glad to add that we have successfully exited the London Club debt stock. Nigeria is now one of the few countries outside the Organisation for Economic Co-operation and Development (OECD) with a debt to GDP ratio below 20 per cent. This manageable debt level continues to allow us to redirect expenditure away from debt service payments to capital spending.

"Our intention is to continue to service multilateral debts as and when due, until maturity. Our analysis indicates that there will be no financial benefit from undertaking any restructuring or otherwise prepaying these debts. We therefore have earmarked the sum of N66 billion for servicing our external debts in 2008," he said.

The payroll and overheads, which together constitute Recurrent Non-Debt Expenditure, he said, accounts for 55.2% of total spending, while Capital Expenditure accounts for 33%. Within recurrent expenditure, payroll has increased minimally to N779.3 billion, following government reforms in that area. Overheads have been kept in check with a proposal of N267.6 billion, a reduction from the 2007 level. The relatively low utilisation of the 2007 capital budget accounts for the reduction to N634.2 billion in 2008.

Some of the highlights of some key projects include Transportation which government proposed a capital expenditure of N94.36 billion for the sector.

"Specifically, we have set aside the sum of N73.1billion for Highway Construction and Rehabilitation; N6.02 billion for Survey, Mapping and Geo-Information activities; N6 billion for Water Transportation development, including the dredging of the River Niger from Lokoja to Warri, (including the construction of jetties); and N9 billion for the development of Air Transportation.

"To augment government spending on the provision of roads we shall invite private investments into the sector. We have already reached agreements with interested private sector investors for the construction of the second Niger Bridge at Onitsha/Asaba and a Bridge across River Benue at Bagana on the basis of a public-private partnership," he said.

On education, Yar'Adua proposed an allocation of N210.45 billion for the education sector, up 12% from the N188 billion allocated in 2007. The capital component of the allocation is N47.8billion, targeted at human resource capacity building, upgrading of facilities in our educational institutions and reforms to improve the quality of, and access to education.

"This excludes our intervention through the Universal Basic Education Commission, through which we are providing additional resources of N39.7 billion to the States and Local Governments to support basic education. These additional resources are to upgrade infrastructure and teaching facilities in primary schools across the nation," he said.

On the health sector, Yar'Adua proposed an allocation of N138.17 billion for 2008, a 12.57% increase over the 2007 allocation of N120.8 billion. The capital component of this amount is N49.37 billion.

Government allocated N139.78 billion which represents an increase of 15.6% over the 2007 allocation of N118 billion. "The capital component of this is N114.4 billion, out of which funds have been provided for the completion of 32 on-going Power Transmission Projects and the rehabilitation of key power stations nationwide. Alternative funding will be sourced for ongoing work on the National Integrated Power Project in the Niger Delta region with expected output of 2,555MW," he said.

Government, according to the President, intends to enhance the capacity and preparedness of the security services and proposed a total allocation of N444.60 billion for the military and the Police. "We are providing our security services with all requisite force enablers and multipliers, including arms and ammunition, improved information and telecommunications equipment and facilities, riot control equipment, training and retraining, and sundry logistics support. We are also rehabilitating the residential and office accommodation of the security services," he said.

The Speaker of the House of Representatives, while responding to the President's presentation, said the focus on Security and the Niger Delta in Yar'Adua's seven point agenda has been appropriately matched with the level of funding that will ensure that your plans for these two priorities areas are translated into action.

"We will therefore play our part diligently and patriotically by ensuring that our deliberations are thorough and we will expedite action in approving the resources needed to implement your programmes," he said.

Source: ThisDay (Nigeria)