PDP Split Threatens Economic Reforms, 2014 Budget

The split in the People’s Democratic Party (PDP) is posing serious threat to the economic advancement of the country. It is feared that the lingering crisis may make it difficult for certain bills in the National Assembly to be passed soon.
For instance, given current circumstances, it is highly unlikely that long- deliberated Petroleum Industry Bill (PIB) will be passed soon. An end to regulatory uncertainty is thought necessary to unlock new investment in the upstream oil sector. Even passage of the 2014 Budget, expected to be read at the end of October, may become more difficult, further complicating the economic outlook.
Plans outlined in Nigeria’s Medium-Term Budget Strategy Paper suggest a moderation of total spending in 2014, to N4.5 trillion, from N5 trillion in 2013. 
“Worryingly, from a growth perspective, the share of recurrent spending would rise to 73.8 percent of total spending, up from 64 percent in the current financial year (increasing four percent in nominal terms, to N3.32 trillion in 2014 from N3.2 trillion in 2013, but squeezing capital expenditure), said Razia Khan, an analysts with Standard Chartered Bank, London. 
Also worrisome is that fact budget assumptions for 2014 may be very bogus in a bid to have enough funds to spend in the build up to the 2015 elections. A benchmark price of crude of $74/barrel is initially proposed, although this has typically been subject to upward revision in the past. Average oil output levels of 2.39 million barrels per day (mmbd) are also assumed.
“Given the current political backdrop, budget assumptions for 2014 appear overly ambitious”, said Khan. 
Currently, official estimates suggest that as much as one-fifth of the country’s oil output is lost to theft. Actual output levels have averaged far less than the 2.53mmbpd assumed in the 2013 budget. It is likely that oil output levels will similarly undershoot the 2.39mmbpd assumed for 2014, necessitating reliance on Nigeria’s excess crude earnings for budget ‘augmentation’. 
She further expressed fears that the net effect is to reduce any buffer Nigeria might have in place against a more sustained decline in oil earnings. With politics moving to centre stage, the consensus needed to tackle oil theft may be elusive. Spending and borrowing plans should be gauged in this light.
Whatever the aims outlined in the budget framework, the country has rarely faced elections without seeing a rise in spending. 
Khan recalled that in 2010, the year before the 2011 elections, Federal Government spending increased 50 percent year-on-year (y/y), boosted by supplementary budgets. 
“While the plan is to cut overall spending in 2014 because of the strain on oil earnings, Nigerian politics are notoriously dependent on patronage. A protracted period of negotiations ahead of party primaries would likely require even greater spending than outlined in the 2014 budget.
 “Although official budget plans see the 2014 deficit capped at 1.9 percent of GDP (1.8 percent in 2013), and borrowing of N572 billion after N577 billion in 2013, we see upside risks to spending, deficit and borrowing projections. Revenue is likely to disappoint relative to budget projections. The more contentious is the politics (especially in the Delta region), the greater the likelihood of further slippage in oil production and earnings”, said Khan.

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