In: Economics
From Ojekunle, A. (Dec 2018), for Pulse: “President Muhammadu Buhari on Wednesday presented $28.80 billion (N8.83 trillion) budget for 2019 to the Nigerian National Assembly for scrutiny. This is President Buhari's fourth and last budget for his first term in office as he is also seeking re-election for the February 2019 presidential poll. The 2019 budget is placed on the following assumption:
a. Oil price benchmark of $60 per barrel;
b. Oil production estimate of 2.3 million barrels per day, including condensates;
c. An exchange rate of N305/$;
d. Real GDP growth of 3.01%; and
e. Inflation Rate of 9.98%.
Nigeria is estimating a total revenue at N6.97 trillion (which is 3% lower than the 2018 estimate of N7.17 trillion), consisting of oil revenue projected at N3.73 trillion while non-oil revenue is estimated at N1.39 trillion. Projected revenue from taxes: Companies Income Tax (CIT) - N799.52 billion Value Added Tax (VAT) - N229.34 billion Customs Duties - N302.55 billion. Independent Revenues to N624.58 billion. By implication, this shows Africa's largest economy with crude oil as its cash cow will still do below average on its diversification policies as oil takes centre stage in government revenue. Fuel subsidy continues and in the 2019 budget proposal, Nigerian government set aside N305 billion ($1 billion) for under-recovery by NNPC on PMS in 2019 (note: this refer to fuel subsidies). The budget deficit is projected to decrease to N1.86 trillion (or 1.3% of GDP) in 2019 from N1.95 trillion projected for 2018. This reduction is in line with plans to progressively reduce deficit and borrowings.” Give all of the above, answer the following questions:
a) Unemployment in Nigeria is now at 23%. Represent the market of goods and services in Nigeria given this figure and the data for growth and inflation above.
b) Assume that the government scraps fuel subsidies. What should happen to the public deficit, economic growth and inflation?
c) Does the data indicate that the government is running a contractionary or expansionary fiscal policy? Explain your reasoning.
d) Given the data above, what would you recommend in terms of monetary policy for the Nigerian Central Bank? Explain your reasoning.
Nigerian President Muhammadu Buhari presented a 8.83 trillion naira ($28.80 billion) budget for 2019 to parliament on Wednesday, and laid out a plan to drive growth two months before elections.
The spending plan for Africa’s top oil producer assumes crude production of 2.3 million barrels a day, an oil price of $60 per barrel and an exchange rate of 305 naira to the dollar.
Buhari’s handling of the economy – which emerged from its first recession in 25 years this year but remains sluggish – has become a campaign issue.
The main opposition candidate, businessman and former vice president Atiku Abubakar, has criticised Buhari’s economic policies and has promised to double the size of the economy to $900 billion by 2025 if elected.
The budget is the fourth Buhari has present to parliament since taking office in 2015 but, unlike the others, did not set record high levels of spending as the government seeks to lower debt. He also received a rowdier reception than in the past, with his statements greeted by boos and cheers.
The spending plan is smaller than the record 9.12 trillion-naira budget for 2018 that he signed into law in June. The budget must still be approved by parliament before it can be signed into law, a process that can take many months.
Nigeria’s economy grew by 1.81 percent in the third quarter of this year, the statistics office said last week. And, in a separate data release days later, it said the inflation rate rose slightly in November to 11.28 percent compared with a year ago.
($1 = 306.6000 naira)