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Quick View: 2017 Budget - Too little or too large?

​The 2017 draft budget submitted to the Joint Assembly falls in line with the countercyclical fiscal policy stance of the present administration. Proposed increase in expenditure (20%) and revenue (28%) reflect a renewed desire to reflate the economy in light of a more positive fiscal outlook on the back of expected higher oil earnings. Whilst the Federal Government (FG) will hope that size translates directly into impact, it is important to assess just how large the 2017 budget is as we draw a line between optimism and hope. Here is our attempt to gauge the true size of the budget.

Nominal projected expenditure in 2017 is 20% greater than the budgeted amount for 2016, an identical change between the overall 2015 budget (including supplementary) and 2016 budget. But in real terms (2016E average inflation: 15.6%), projected expenditure is only 4% greater, also marginally in line with the increase between 2015 and 2016. Meanwhile, whilst 2017 revenue is expected to grow by 28% in nominal terms, real growth is estimated at 11%. This is significant as it will be the first real growth in budgeted revenue since 2013, which documented a mere 1% year-on-year increase in real revenue. This lends credence to the view that the 2017 revenue target is somewhat ambitious.

Whilst our analysis presents a slightly mixed picture for projected expenditure, the increase in revenue is much plainer. As mentioned above, oil earnings are the largest contributor to FG revenues, thus making dollar earnings key to the attainment of budget targets. A rudimentary analysis of the numbers reveals the change in budgeted oil revenue for 2017 as 142%. Meanwhile, there is a compounded 73% increase in oil revenue parameters – combined growth in oil price (12%) and exchange rate (55%). This difference is most likely accounted for by projected increases in oil royalty and tax payments. As we do not have sufficient information about those revenue streams, it is difficult to properly assess if this oil revenue target is feasible. Meanwhile, the most suspect parameter is the one that remained unchanged – oil production target. Given the unresolved militant situation in the Niger Delta, it is doubtful that the target will be met.

In a similar vein, it takes a bit of faith to imagine a completely successful budget execution, in view of recent experience. After annualizing 2016 figures, we get implementation rates of 75% and 79% for revenue and expenditure respectively, worse than 2015 rates of 80% and 94%. The 2017 budget is even larger nominally so could be more difficult to execute. On the other hand, the budget looks set to be passed sooner and the FG now has an invaluable full fiscal year under its belt. This is crucial as the ultimate measure of the size of the 2017 budget will be its execution.