CBN Forecasts Tighter 2011 Budget

Leadership (Abuja)

4 May 2011

Abuja and Lagos — The Central Bank of Nigeria (CBN) has disclosed that fiscal tightening is expected to start from the 2011 budget just as deficit spending is anticipated to decline to 4.1 per cent to 3.6 per cent this year.

Also, the International Monetary Fund (IMF) has projected a 5.5 per cent average growth rate for sub-saharan Africa this year, even as it projects a 6.0 per cent average growth rate for 2012.

The deputy governor, economic policy of the apex bank, Mrs. Sarah Alade, who made the disclosure at the launch of IMF Africa Regional Economic Outlook in Lagos yesterday said tight monetary stance has also commenced with the raising of policy rate while banking sector reform was progressing satisfactorily with the activities of the Asset Management Corporation of Nigeria (AMCON).

Alade noted that the management of exchange rate volatility continues to be the goal to attract foreign investors, adding that CBN has begun forward sales of foreign exchange to mitigate rate volatility.

She said with the build-up in foreign reserve, stability has returned to the market as demand has stabilised.

Alade stated that continued fiscal reform anchored on sustained government spending and future savings – Sovereign Wealth Fund (SWA) – would further strengthen fiscal policy, adding that good programmes for the management of oil wealth that have legislative backing would be put in place with three components, which she listed as stabilisation fund, funds for future generation and domestic infrastructure funds.

In his remarks, the minister of finance, Dr. Olusegun Aganga, who was represented by the ministry’s permanent secretary, Mr. Danlandi Kifasi, noted that the ministry had begun to implement fiscal reforms in conjunction with the economic growth strategy, adding that underlying fiscal strategy was the necessity for fiscal consolidation which was highlighted in 2011 budget proposed by President Goodluck Jonathan.

Aganga noted that government was determined to bring the budget back to balance through the enhancement of revenues and by increasing the efficiency of expenditure.

“We are working to protect and maximise the revenue we receive today by ensuring the integrity of our revenue base away from oil and gas by broadening the tax base. We will achieve this by modernising and improving the efficiency of the tax framework.

On the expenditure side, the use of performance-based budgeting, better capital project management and the implementation of the recommendations received from the Expenditure Review Committee will work towards delivering increased efficiency in spending and value for money,” he said.

The director-general of the Budget Office, Mr. Bright Okogu, told journalists that the office was very deep in negotiation with the National Assembly on the need to come back to a more realistic budget deficit level.

Okogu noted that the original budget plan presented by Jonathan implied a deficit of around 3.6 per cent which, according to him, would push the deficit “back in that direction”.

He said that the country’s general elections in April disrupted the pace of negotiations, adding that he was optimistic agreement would be reached before the end of May, the terminal date for the current administration.

Meanwhile, the International Monetary Fund (IMF) has forecast a 6.0 per cent average growth in sub-Saharan African economies come 2012, following the ongoing recovery from the crisis-induced slowdown, just as it said that portfolio flows to Nigeria, the continent’s most populous nation, have started to recover after $2.6 billion of portfolio investment left the country between 2008 and 2009.

Commenting on the regional economic outlook report, Ms. Antoinette Monsio Sayeh, director of IMF, African Department, said that the growth would not be uniform in the region with 29 low-income countries and seven oil exporting nations.

“Growth is recovering more gradually in the region’s middle-income countries, including South Africa,” she stated, adding however that “this overall sanguine picture must be judged alongside still lingering dislocations from the global financial crisis.

The region’s progress toward the poverty reduction Millennium Development Goals (MDGs) has been delayed by rising unemployment and the impact of the 2008 spike in food and fuel prices.”

The recent renewed increases in food and fuel prices, she added, have imposed further hardships on the region’s poorest households, and the global price shocks (and the region’s fast recovery) were also likely to lead to higher inflation and, in a number of fuel importers, to deteriorating current account deficits.

Consequently, with strong growth and rising inflation pressures, the IMF said it believes the broad direction of fiscal policy in most countries would be moving away from the supportive stance of the last few years, stressing however that “fiscal support to poor households hit by rising food prices will need to be accommodated in some countries. This should be targeted on their incomes or primary spending”

“Monetary policy remains looser than desirable in many low income countries in the region, even before the recent surge in food and fuel prices.

To counter incipient inflationary pressures, monetary policy will need to be tightened, particularly where growth has already regained pre-crisis levels,” she added.

Isaac Aimurie, David Agba, Amaka Ifeakandu and Chris Ugwu

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