The Federation Account Allocation Committee (FAAC) vote between January and last month was N3.3 trillion, analysts at Standard Chartered Bank (SCB) have said.
The figure represented an increase of 13.74 per cent against that of the same period in 2011.
Regional Head of Research, Africa at SCB, Razia Khan said in an emailed report titled: ‘Nigeria – The political cycle and policy’ that the FAAC hike may be seen as further evidence that Nigeria’s political cycle is starting to have more of an influence. She also ruled out possibilities of carrying out Gross Domestic Product (GDP) rebasing before 2014, a process that will enhance the economy.
She said despite the success of Nigeria’s recent Eurobond issuance and a reduced domestic issuance calendar for third quarter, concerns persist over the broader fiscal backdrop.
“Even improved budget implementation is a source of concern. Commentators are unsure if this reflects more efficient spending, or pressure to spend more. In first quarter of 2013, government revenue was reportedly 12.6 per cent lower, while spending rose 15 per cent,” she said.
Khan explained that increased military spending following the state of emergency in the Northeast should be met by a contingency reserve adding that further escalation may put pressure on spending plans.
She said Nigeria’s $284 billion GDP is expected to be rebased by early 2014, a process that will lead to about 40 per cent upward revision in the country’s national income.
The GDP is the market value of all final goods and services produced within a country, calculated using product, income and expenditure approaches. The real GDP is one that is adjusted for inflation while nominal GDP is the value of goods and services based on current market prices.
Khan said in the near-term, Nigeria economy faces some risk which may lead to growth slipping to six per cent. She said although rebasing of the GDP will support the much needed growth and provide analysts with more accurate sectoral shares, it will not happen until 2014.
Khan also expressed concerns about Nigeria’s political cycle and spending pressures. “There is a risk that elections, due in 2015, are brought forward, allowing for any legal disputes to election results to be settled ahead of a May 2015 transition. If this is the case, spending may rise meaningfully ahead of party primaries which would be held in early half year 2014,” she said.
She said weaker oil output relative to ambitious budget targets risks fiscal deterioration, with Nigeria dipping into its oil savings. With only modest spending increases envisaged in 2013, a budget deficit of 2.17 per cent was initially forecast.
However, oil production, reportedly averaging 2.1 to 2.2 million barrels per day (mbpd), has fallen short of the 2.53 mbpd assumed in the 2013 budget. In June, output may have hit a low of 1.9mbpd. This, she insisted, has necessitated more frequent augmentation of revenue from Excess Crude Account (ECA).
“Dipping into oil savings to finance spending may result in a narrower budget deficit for 2013. Despite the success of Nigeria’s recent Eurobond and a reduced domestic issuance calendar for third quarter 2013, concerns persist over the broader fiscal backdrop,” she said.
Khan explained that given anticipated pressure on future inflation, forecast of a 100 basis points (bps) rate hike in first quarter of 2014, followed by hikes of 50bps each in third quarter and fourth quarter 2014, with the interest rate raised to 14 per cent by end of 2014 is a possibility.
Nigerias plans to change its GDP base year to 2008 from 1990, thereby boosting its nominal GDP. By carrying out the exercise, Nigeria will be emulating Malaysia and South Africa which rebased their GDPs from 2000 to 2005 each and Ghana from 1993 to 2006.
The Gross National Product (GNP) measures the value of goods and services produced by a country’s citizens regardless of their location while Gross National Income (GNI) is GDP plus income receipts minus income payments from the rest of the world.
