2016 Economic Growth: FG, World Bank disagree over budget target

Contrary to the projections of the World Bank that pegged the Gross Domestic Product growth rate at 3.7 per cent, the Federal Government economic agenda as contained in the 2016 budget breakdown insisted on GDP growth rate of 4.37 per cent thus making it ambitious.
Earlier this year IMF cut its growth forecasts for the global economy on the back of a slowdown in China, looming recession in Russia and continuing weakness in the eurozone.

The Washington-based fund, while warning of a significant declines in growth rates across global economies especially among emerging markets including Nigeria’s against the backdrop of crash in oil prices, cut its 2016 forecasts from 4.0 per cent to 3.7 per cent.

Meanwhile, the Federal Government’s 2016 budget envisioned an expansionary fiscal measures expected to galvanize the economy to a growth momentum for the forecast GDP rate significantly above 4.0 per cent.

GDP is derived from the value of all goods and services available for final uses and export.

The expenditure approach measures the final uses of, or expenditure on the produced output, as the sum of final consumption expenditure; gross capital formation (investment activities carried out in the economy), and exports less imports.

Though the 2016 target is lower than 5.5 per cent revised projection in 2015 budget it is clearly ambitious in the light of revised figures given by multilateral institutions and several multinational and local financial institutions as well as real outcome recorded so far in 2015 fiscal year.

Budget Breakdown

The growth rate projection, according to the breakdown, would be achieved through alignment of fiscal, monetary, trade and industrial policies.

Also the government intends to enhance the realization of this target by ensuring job creation on every aspect of the execution of the 2016 budget.
Its inclusive growth strategy would entail a reduction in tax rates for smaller businesses as well as subsidized funding for priority sectors such as agriculture and solid minerals.

However a breakdown of the 2016 spending plan showed that non-debt recurrent expenditure was cut by 9.1 per cent to N2.59 trillion indicating that the expenditure approach to GDP will point downwards.

To offset this scenario capital expenditure was increased by 223 per cent to N1.8 trillion which is 30 per cent of total budget.
Works, Power and Housing got the biggest capital votes of N433.4 billion, followed by transport (N202 billion), Special Intervention Programs (N200 billion), Defence (N134.6 billlion).

Economy analysts believe these allocations would add to GDP rate more significantly.

Also budget deficit of N2.2 trillion which translates to 2.16 per cent of Nigeria’s GDP and an overall debt to GDP of 14 per cent, is expected to further stimulate growth.

The economy has witnessed one of its worst declines in the out going year with GDP initially projected at 6.4 per cent revised by the Federal Government to 5.5 per cent and subsequently revised further down by various multinational organisations including the World Bank, the International Monetary Fund, IMF, Renaissance Capital, one of the world’s leading private sector financial institutions as well as Bloomberg, world’s leading financial media giant and African Development Bank, AfDB, Africa’s multilateral financial institution.

Nigerian-based financial institutions such as FSDH Economic Research, an arm of the FSDH Merchant Bank, Afrinvest Group, a Lagos based investment house, among many others have also analysed the economic trend.

Cumulatively, all these organisations brought down the forecast GDP growth rate for 2015 to between 2.5 and 2.8 per cent by year end 2015.
Real GDP growth rate has been largely in the negative this year declining to 3.38 per cent in the first quarter and further down to 2.57 per cent in the second quarter but it made slight improvement in the third quarter to 2.84 per cent, thereby giving an overall picture close to the forecasts by international and local financial institutions.

In the medium to longer term, the Buhari administration intends to pursue economic diversification through import substitution and export promotion.

The policy thrust of the budget included stimulating the economy and making it more competitive by focusing on infrastructural development; delivering inclusive growth; and prioritizing the welfare of Nigerians.