Raising targets:President Umaru Yar'Adua
Nigeria boosts 2010 spending plans
Nigeria plans to increase spending by a third next year, to help lift itself out of an economic downturn, overhaul its shambolic power sector and develop the Niger Delta, the restive heartland of its mainstay oil industry.
President Umaru Yar'Adua sent a 4.079 trillion naira ($27 billion) 2010 budget proposal to parliament today, a 32% increase in planned spending on 2009 which, if approved, will push sub-Saharan Africa's second biggest economy even further beyond a 3% fiscal deficit target.
About a third of the planned budget is capital spending on areas including infrastructure, the power sector and development in the Niger Delta, where an amnesty programme earlier this year has so far brought a lull in militant attacks on the oil sector.
"The purpose of the 2010 budget is to accelerate economic recovery through targeted fiscal interventions intended to further stimulate the economy and support private sector growth," Yar'Adua said in a budget statement presented to parliament by one of his aides.
The statement said 1.37 trillion naira was for capex and 2.011 trillion naira for recurrent, non-debt expenditure.
Yar'Adua said improving power infrastructure was a top priority and that Nigeria aimed to double electricity capacity to 10,000 megawatts by the end of 2011. Intermittent power supply is seen as a major brake on economic growth.
The spending plans for Nigeria, which vies with Angola as Africa's biggest oil producer, assume oil output of 2.088 million barrels per day, a benchmark oil price of $57 and an exchange rate of 150 naira to the US dollar.
Nigeria's oil output is currently below 2 million bpd partly because of years of unrest in the Niger Delta.
One source told Reuters last week the 2010 deficit would reach 4.87% of GDP.
The deficit for this year assumed in the 2009 budget was 3.02%.
"Although the deficit will likely exceed targets established under fiscal responsibility guidelines ... this is no surprise given that priority areas are infrastructure and the Niger Delta," said London-based Knight Libertas analyst Richard Segal to Reuters.
"The accountability of spending in these two areas will be crucial to sustain the confidence of local investors," he said.
Yar'Adua said the utilisation of budgetary allocations for 2009 had been "below expectations", raising questions about how effectively government would spend the additional funds.
But the Senate today passed a 353.6 billion naira supplementary budget for 2009 and extended the timeframe for implementing the planned spending to the end of March next year.
The additional budget includes about 114 billion naira of capital spending on "post-amnesty" development projects in the Niger Delta, including designing and building railways and highways and improving transportation on inland waterways.
A lack of development in the delta despite half a century of oil extraction is seen as a root cause of instability there.
Michael Hugman, strategist at Standard Bank, said the 2010 budget would have some positive effects in the immediate term but noted there was an inflationary risk, particularly if the government goes ahead with plans to abolish fuel subsidies.
"In the short-term, (the expansionary element) will be positive for growth, equities and also, somewhat perversely, bonds, which we believe are being driven by a combination of flight to quality by banks and pension funds together with repeated liquidity injections into the market," he said.
"However, when combined with inflationary risks from fuel price deregulation and possibly poor food production over the next few months, there is a danger inflation can head back towards 15% year-on-year by mid-2010."
The 2010 spending plans target economic growth of 6.1% and headline inflation of 11.2%.
Real GDP growth in 2009 is estimated at around 5.86% while external debt stood at $3.86 billion at the end of October, according to Yar'Adua's statement.
Nigeria is expected to fund the budget with a planned $500 million bond, the proceeds of an oil licensing round, domestic borrowing, privatisation proceeds and windfall oil savings.
The spending plans were to have been presented by the president last week but that was blocked by a dispute over which chamber of parliament should host the presentation.
The president traditionally outlines the plans to parliament in person but he left for a medical check-up in Saudi Arabia late yesterday, and Tuesday's submission was handed to the heads of the Senate and House of Representatives by one of his aides.
The proposals must be debated separately by the Senate and the House of Representatives before the two form a joint committee to settle differences and approve the spending plans.