Uncertainty over Buhari’s economic policy to persist with delay in 2016 budget

04 Dec 2015
Financial Nigeria

Summary

Amid worries about slowing GDP growth and government’s hint at fiscal expansion next year, the lack of information regarding how the budget will be financed and no commitment to credible spending cuts “threaten to reverse any positive effects of a fiscal stimulus plan."

Nigerian President Muhamadu Buhari

Investment analyst Manji Cheto has said in a recent note that Nigeria’s newly-minted finance minister Kemi Adeosun is unlikely to present the 2016 budget to parliament in good time to get it approved before 2015 year end. Thus uncertainty surrounding President Muhammadu Buhari’s short- and medium-term economic plans will persist, she said.

Amid worries about slowing GDP growth and government’s hint at fiscal expansion next year, the lack of information regarding how the budget will be financed and no commitment to credible spending cuts “threaten to reverse any positive effects of a fiscal stimulus plan,” according to the analyst for West Africa at the global advisory firm Teneo Group.

She said: “While the government appears likely to try to spend its way out of a low growth cycle, it has yet to make clear how it will finance fiscal expansion plans. Domestic opinion suggests that the Central Bank of Nigeria’s surprising decision last month to reduce the benchmark interest rate from 13% to 11% -- the first cut in two years -- is a sign that the CBN is gearing up to support the government’s domestic borrowing plans by providing ‘cheaper money’. Yet, domestic borrowing alone is nowhere near effective enough in plugging the fiscal gap.”  

Investors have already run for the exit, with the Global X MSCI Nigeria ETF down 31% this year. Also, the main index of the Nigerian Stock Exchange has lost 19.56% of its value as at November 30th from June 1st (the first day of trading since the May 29th inauguration of the government of President Buhari.)


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