The fiscal deficit of the Federal Government of Nigeria has widened by 67 per cent to N3.4 trillion (2.4 per cent of Gross Domestic Product) in 2018), Chief Economist, PricewaterhouseCoopers, Prof. Andrew Nevin, has said.
Nevin said it was expected that the deficit would be funded by an increased issuance in the domestic bond market.
His views were captured in a report, “Nigeria Economic Outlook: Top 10 Themes for 2019.”
He explained that Nigeria needed to ensure sustainable fiscal management that was resilient to global oil price cycles, noting that some key risks to foreign investment include “declining interest rate differentials as advanced economies continue to tighten policy rates; and political instability ahead of the 2019 elections, which drives uncertainty around government policies.”
He said, “For instance, it is expected that the forex market will remain largely stable in early 2019, however, volatility in the oil market may cause depreciation that could range from about N390 to N415 per dollar by year-end 2019.
“In a bid to sustain its policy of exchange rate stability amidst sustained demand pressures, the Central Bank of Nigeria increased dollar injections into the foreign exchange market by 87 per cent to $40 billion in 2018.”
Managing Director/Chief Executive Officer, Yield Investment, Mr. Jide Okunola, said Nigeria’s weak revenue mobilisation had major implications for growth and development, adding that the country needed to take concrete steps to break its oil dependency to improve its economic and social outcomes.
Nigeria’s intrinsic potentialities lie beyond oil; harnessing these potentialities has become an imperative, given the expectations of lower oil prices. Based on recent trends, our report reviews the impact of low oil prices on key economic indicators and the real sector through an industry survey,” he said.
The managing director noted that the transition to a non-oil economy would not be an easy task, as corruption, inadequate infrastructure, low skill levels, and macroeconomic uncertainty were major challenges confronting the business environment.
“Our survey highlights the exchange rate as one of the top challenges facing industries in recent times. Capital controls, FX rationing, and restrictions on the importation of certain items are measures the CBN has implemented to preserve the foreign reserves and maintain currency stability,” he stated.
Okunola said that Nigeria’s Economic Recovery and Growth Plan 2017-2020 aimed at achieving macroeconomic stability, economic diversification, adding that there was a need to accelerate its implementation progress.
According to him, Nigeria’s emergence from recession is very slow, as sectoral growth patterns have remained unstable.
He added that the challenges confronting Nigeria called for proactive and strategic responses, which must be supported by every responsible stakeholder of the Nigerian economy.
World Bank on fiscal deficits
The World Bank on its part also predicted that Nigeria’s fiscal deficits would likely widen further, owing to increased pre-election spending and sustained revenue shortfalls.
It noted that Nigeria’s 2018 budget implementation was expected to be assertive as the Federal Government intensified efforts to complete projects before
elections.
According to the World Bank, growth in sub-Saharan Africa would accelerate to 3.4 per cent in 2019, owing to improved investment in large economies, together with continued robust growth in non-resource intensive countries.
“Per capita growth is forecast to remain well below the long-term average in many countries, yielding little progress in poverty reduction. Growth in Nigeria is expected to rise to 2.2 per cent in 2019, assuming that oil production will recover and a slow improvement in private demand will constrain growth in the non-oil industrial sector,” the Bretton Wood institution
said.
It added that increased reliance on foreign currency borrowing had heightened refinancing and interest rate risk in debtor countries, noting that domestic risks, in particular, remained elevated, while political uncertainty and a concurrent weakening of economic reforms could continue to weigh on the economic outlook in many countries.
Tax collection
On tax collection, it said improving tax collection and administration had become imperative for achieving national growth
objectives.
The World Bank said, “Nigeria is a low-taxed economy compared to its peer; in addition, challenges with arbitrary exemptions and enforcement have further constrained tax receipts. The framework for tax exemptions should be reviewed and approvals targeted at growth inducing sectors as government improves collection.
“Efficiency in government spending has to improve; there is room for substantial savings in capital outlays and operating expenditure across the three tiers of government. In addition, the government needs to be deliberate about increasing fiscal savings through a higher accretion to the Sovereign Wealth Fund, which has investment objectives of diversification and improving long-term economic
prospects.”
Nigeria’s presidential election
Ahead of the presidential election, it projects policy continuity with all the reform policies intact and the economy continuing its recovery, albeit at a slow pace, if the incumbent government retains power.
“The emergence of a new government will see new policies are formulated, or potential re-adjustment to existing policies with focus on deepening the recovery of the economy, while a heightened political risk will see political tension accelerating in the wake of the 2019 general elections, negatively impacting policy implementation with significant security risks,” it said.
The agriculture sector outlook remains weakened due to ongoing conflicts, despite targeted government support.
