November 6, 2020

Nigeria Economic Update (Issue 41)

President Muhammadu Buhari presented the Federal Government’s Proposal for the 2021 fiscal year before a joint sitting of the National Assembly. The proposed Revenue and Expenditure budgets are ₦7.89 trillion and ₦13.08 trillion respectively, representing a ₦5.20 trillion fiscal deficit.1 With an estimated Gross Domestic Product (GDP) of ₦1.43 trillion2, the fiscal deficit is 3.64 percent of estimated GDP, above the 3 percent threshold set by the Fiscal Responsibility Act of 2007. Key assumptions of the proposed budget include: $40 per barrel oil benchmark, crude oil production of 1.86 million barrel per day, an exchange rate of ₦379 per US$, GDP growth rate of 3 percent and inflation rate of 11.95 percent. The high fiscal deficit increases the likelihood of a default in the near term as the government is unlikely to considerably raise tax or cut back on government programmes. The overtly expansionary macroeconomic policies and explicitly unsustainable public debt dynamics calls for reforms capable of increasing the share of domestic savings to finance domestic capital stock rather than external debt.

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Nigeria Economic Update (Issue 1)

Nigerias external reserves improved in 2017. The reserve stood at approximately $39 billion as at the end of December 2017, up by about 50 percent from the $26 billion at the beginning of the year 20172. The surge in reserve was particularly boosted by increased capital importation, and crude revenue earnings prompted by a relatively higher crude oil price and improved domestic production. Given that the recent uptick in external reserves is still largely associated with improved crude oil price, efforts should be geared towards conserving current reserve gain so as to cushion future external shock. In the medium term, there is need to diversify export earning away from oil so as to mitigate the effects of volatility in crude oil prices.