President Umar Yar ‘Adua Photo: Sun News Publishing

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The 2009 appropriation bill presented to the joint session of the National Assembly by President Umar Yar ‘Adua last Tuesday, has raised some critical questions about the ability of the nation’s financial sector to effectively play the role of financing an estimated N1.09trillion representing about 39 percent of the country’s GDP, envisaged by the government in fiscal 2009.

This is critical considering the sharp decline in oil revenue and the likely effect of the on going global financial meltdown on the economies of Africa, America and Europe.

With a benchmark of $45 per barrel, for some 2.292 mbpd, Yar’Adua already knows that he has a tough job at hand financing the deficit in a manner that would not breed much of the undesirable consequences on the economy.
As a result the president plans to leverage on the nation’s financial sector to provide some of the funds needed to finance the deficit expected for fiscal 2009.

But in addition to devoting the nation’s outstanding signature bonuses, proceeds of ongoing privatization of government enterprises, and the recall of US$200million from the Nigerian Trust Fund of the African Development Bank, the president is also hoping to leverage both the domestic and international financial markets to ensure the targets of keeping inflation within the single digit spectrum.

He pointed out that unspent balances from the 2008 Budget, and domestic borrowing and a Naira-denominated international bond issue of US$500million will form part of the sources of revenue to finance the deficit next year. In addition the government expects to issue development bond primarily for the development of a benchmark for the pricing of local and foreign currency denominated sovereign debt instruments.

While government decision to access resources from the local and international financial markets in financing its proposed budget deficit, concerns are being raised about the ability of these windows to support the government’s needs in the face of turmoil in the global financial market.

From all indications, the crash of big financial institutions in America and Europe over the last few weeks suggests that the ease with which Nigerian institutions or government can raise funds from the international market may be greatly impaired by the global financial meltdown.
This could equally be compounded by significant divestment of notable portfolio investors from Nigeria’s capital market.

When and how this group of investors believed to have played a strategic roles in developing the market can return or even subscribe to the N500million bond proposed by the government is a matter of conjecture.

Even within the domestic market, many have often wondered whether the 24 banks have the capacity to meet President Yar’ Adua’s expectations in 2009.
Mindful of the decline in international oil prices, and the uncertainty over the health of the banks, perhaps what the best course of action open to President Yar’ Adua, may be to compelled Government to make some exceptional adjustments in her spending plans and priorities, by introducing policies that could curb inefficient spending in Ministries, Departments and Agencies of government.

Such preemptive actions have become necessary considering that government still needs to ensure that the fiscal gains it has recorded over the last few years are not left to fizzle out in 2009., having recognized that the Monetary policy regime in the medium term for 2009, will focus on continuing efforts at managing inflation within a single-digit limit and keeping interest rates at appropriate levels, using the present market-determined monetary management system

In line with his 7point agenda, the president underscored the need to address the serious infrastructure gap and make key investments in priority sectors, recognizing that aggregate spending remains relatively large compared to revenue.

However, we remain committed to reverting to a more conservative and sustainable fiscal deficit of 3per cent, or lower, in the medium term, consistent with international best practice.
Moreover, it must be noted that committing government’ energies at ensuring the maintenance of an appropriate exchange rate, and taking necessary steps to manage the volume of money supply through the Central Bank’s open market operations at a time that government is yet to tame official profligacy might achieve very little result at the end.

Investments in non-priority capital outlays such as the acquisition of new vehicles, and the construction and furnishing of new headquarters for MDAs, have been suspended. Excessive expenditure on international travels and training has been curbed by 50% with expenditure on local travels slashed by 25%. Recurrent expenditure on personnel costs will also be controlled with the full deployment of IT, by way of the Integrated Personnel and Payroll Information System (IPPIS), to all MDAs. Payments for goods and services will be discharged through the e-payment system to increase efficiency and reduce avenues for corruption.