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2018 Budget: Facts Behind The Figures

The key parameters and assumptions adopted for the 2018 Budget of Consolidation as set out in the 2018-2020 Medium Term Expenditure Framework and Fiscal Strategy Paper include crude oil price benchmark of $45 per barrel; oil production estimate of 2.3 million barrels per day; exchange rate of N305/$; inflation rate of 12.4 per cent and real GDP growth of 3.5 per cent. Based on these assumptions and macroeconomic framework, total revenue of N6.607tn is projected to fund aggregate expenditure of N8.612tn resulting in a deficit of N2.005tn (or 1.77 per cent of the GDP) to be financed mainly by domestic and external borrowing.

As the National Assembly gets set to consider the budget proposals presented by President Muhammadu Buhari, an appreciation of the facts behind the figures will help facilitate early passage of the budget and avoid the kind of delay that characterised the 2017 budget. It will be recalled that during the consideration of the 2017 budget proposals, the National Assembly members jerked up the oil price benchmark proposed by the Executive arm from $42.5 per barrel to $44.5 per barrel, an action which took a great deal of time to get the buy-in of the executive.

This time round, the National Assembly will also be faced with the option of increasing the reference oil price above the proposed $45 per barrel. The arguments in favour of an increase appear strong and persuasive and on this score, the lawmakers will most likely get the support of the state governors for obvious reasons: an increase will translate into more money for constituency projects and increased allocations to states and local governments. Also, a higher oil price benchmark will narrow the budget deficit and reduce the size of the bo

The key parameters and assumptions adopted for the 2018 Budget of Consolidation as set out in the 2018-2020 Medium Term Expenditure Framework and Fiscal Strategy Paper include crude oil price benchmark of $45 per barrel; oil production estimate of 2.3 million barrels per day; exchange rate of N305/$; inflation rate of 12.4 per cent and real GDP growth of 3.5 per cent. Based on these assumptions and macroeconomic framework, total revenue of N6.607tn is projected to fund aggregate expenditure of N8.612tn resulting in a deficit of N2.005tn (or 1.77 per cent of the GDP) to be financed mainly by domestic and external borrowing.

As the National Assembly gets set to consider the budget proposals presented by President Muhammadu Buhari, an appreciation of the facts behind the figures will help facilitate early passage of the budget and avoid the kind of delay that characterised the 2017 budget. It will be recalled that during the consideration of the 2017 budget proposals, the National Assembly members jerked up the oil price benchmark proposed by the Executive arm from $42.5 per barrel to $44.5 per barrel, an action which took a great deal of time to get the buy-in of the executive.

This time round, the National Assembly will also be faced with the option of increasing the reference oil price above the proposed $45 per barrel. The arguments in favour of an increase appear strong and persuasive and on this score, the lawmakers will most likely get the support of the state governors for obvious reasons: an increase will translate into more money for constituency projects and increased allocations to states and local governments. Also, a higher oil price benchmark will narrow the budget deficit and reduce the size of the borrowing required to finance the deficit.

These arguments are reinforced by the favourable oil price forecasts by reputable international energy agencies such as the US Energy Information Administration which has forecast Brent spot prices to average $56 per barrel in 2018. Similarly, the World Bank expects oil prices to reach an average of $60 per barrel in 2018 from $55 per barrel this year, a reflection of upward pressure on prices from steadily growing demand, output-cut agreements among oil exporters expected to run till March 2018 and supply outages among major exporters like Libya, Nigeria and Venezuela.

rrowing required to finance the deficit.

These arguments are reinforced by the favourable oil price forecasts by reputable international energy agencies such as the US Energy Information Administration which has forecast Brent spot prices to average $56 per barrel in 2018. Similarly, the World Bank expects oil prices to reach an average of $60 per barrel in 2018 from $55 per barrel this year, a reflection of upward pressure on prices from steadily growing demand, output-cut agreements among oil exporters expected to run till March 2018 and supply outages among major exporters like Libya, Nigeria and Venezuela.

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