Afric TV - News Summary...
- The PDP crisis may also complicate the passage of the 2014 budget and that the political backdrop of the saga is likely to pose a serious risk to budget plans.
- Khan said: “Given the current political backdrop, budget assumptions for 2014 appear overly ambitious.
- It is likely that oil output levels will similarly undershoot the 2.39mmbpd assumed for 2014, necessitating reliance on Nigeria’s excess crude earnings for budget ‘augmentation’.
Afric TV - Newsmail Report...
Nigeria’s push for sustainable development and long term economic stability may be undermined by high cost of governance, particularly the rising annual budgets and current political upheavals in the ruling party, which could accentuate the growing level of poverty in the country, a seasoned financial analyst, Razia Khan, has warned.
Khan, Head of Regional Research, Africa of Standard Chartered Bank, in her latest African Regional Focus on Nigeria released a few days ago, specifically noted that current crisis within the ruling Peoples Democratic Party (PDP) remained a potential risks to Nigeria’s efforts to boost economic activities in the oil and gas sector and implementation of the 2014 budget.
The research analyst noted that the upheavals in the political landscape and more importantly within the PDP would not only slow down the passage of the Petroleum Industry Bill (PIB), a major statutory instrument which could help to mitigate the dwindling earnings from the oil and gas sector by unlocking new investments in the upstream sector.
According to her, the PDP crisis may also complicate the passage of the 2014 budget and that the political backdrop of the saga is likely to pose a serious risk to budget plans of moderate spending and also forestall the sustainability of the plans outlined in the Medium Term Budget Strategy Paper for the 2014 budget.
In view of the negative implications of the delayed PIB and other fiscal instruments that may not get the needed urgent attention from lawmakers and the executive in the face of the unfolding political developments, Khan projected that there was every likelihood that recurrent expenditure would overshoot further capital provisions in view of the overly ambitious budget assumptions.
She projected that the share of the recurrent spending would not only rise significantly from the current 64 per cent in the current year to about 73.8 per cent, representing an increase of about four per cent in nominal terms, but that challenges of oil theft and other operational constraints may make the 2.39mmbpd assumed for 2014 unrealistic.
While noting the evolving political squabbles and efforts being made to reconcile the warring factions in the PDP, Khan reported that the crisis could complicate the passage of any legislation and that given current circumstances, it is highly unlikely that Nigeria’s long-deliberated Petroleum Industry Bill (PIB) will be passed soon.
Expatiating further, the renowned research specialist pointed out that an end to regulatory uncertainty is thought necessary to unlock new investment in the upstream oil sector just as the passage of the 2014 Budget which is expected to be presented to the National Assembly at the end of this month may become more difficult, thereby further complicating the the nation’s economic outlook.
On the lingering challenge of budget restructuring for improved capital provisions, she expressed her concern from a growth perspective that the share of recurrent spending would rise to 73.8 per cent of total spending, up from 64 per cent in the current financial year, increasing 4 per cent in nominal terms, to N3.32 trillion in 2014 from N3.2trn in 2013, but squeezing capital expenditure.
Khan said: “Given the current political backdrop, budget assumptions for 2014 appear overly ambitious.
“Currently, official estimates suggest that as much as one-fifth of the country’s oil output is lost to theft. Actual output levels have averaged far less than the 2.53mmbpd assumed in the 2013 budget.
“It is likely that oil output levels will similarly undershoot the 2.39mmbpd assumed for 2014, necessitating reliance on Nigeria’s excess crude earnings for budget ‘augmentation’. The net effect is to reduce any buffer Nigeria might have in place against a more sustained decline in oil earnings.
“With politics moving to centre stage, the consensus needed to tackle oil theft may be elusive. Spending and borrowing plans should be gauged in this light.”
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