Yobe State Government Executive Summary for Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement To Cover Period: 2015-2017 May 2014
Document Control Document Version Number: EFU-FSP-BPS Yobe 2015-2017 v3.1 08-06-14 Document Prepared By: Yobe State Government Budget Working Group Document Approved By: Date of Approval: Date of Publication: Distribution List: Page 2 of 7
Abbreviations and Acronyms BPS CBN CPI EFU FSP GDP IGR IMF IPSAS MBPD NBS NGR SURE-P USD VAT WEO Budget Policy Statement Central Bank of Nigeria Consumer Price Index Expenditure and Fiscal Update Fiscal Strategy Paper Gross Domestic Product Internally Generated Revenue International Monetary Fund International Public Service Accounting Standards Million Barrel Per Day National Bureau of Statistics Nigeria Naira Subsidy Reinvestment Programme United State Dollar Value Added Tax World Economic Outlook Page 3 of 7
1.A Introduction 1. This executive summary provides a precise of the full Economic and Fiscal Update, Fiscal Strategy and Budget Policy Statement document (EFU-FSP-BPS). The full paper includes considerable analysis of prior fiscal and economic performance and a more substantive justification for the forward aggregate envelope and sector allocations. 1.B Economic Performance Summary 2. Global Economy - Global activity and world trade picked up in the second half of 2013. Final demand in advanced economies expanded with much of the upward movement in growth due to higher inventory demand. In emerging market economies, an export rebound was the main driver behind better activity, while domestic demand generally remained subdued, except in China. 3. Nigerian Economic and Mineral Sector - Over the last decade Nigeria grew by 7.5% and is next to the two of the world fastest growing economies of Asia, namely China and India which had grown at 10.4% and 7.6% respectively over the same period. Nigeria s Gross Domestic Product (GDP) growth rate remains robust at an estimated 6.2% for 2013 and a projected rate of 7.2% for 2014. 4. Inflation fell from 12.2 % in 2012 to 9.9% in 2013 following monetary policy tightening and the easing of food prices. The government is expected to achieve an inflation rate target below 8.0% at the end of 2014 if the trend of single digit inflation figure as reported by the National Bureau of Statistics (NBS) for January 2014 at 8% is sustained. 5. The exchange rate has been relatively stable at around 150 to $1 while the fiscal deficit is 2% of GDP which is below threshold of 3% of GDP. The National debt is at a sustainable level of 19.4% of GDP which indicates that the economy is strong if compared to debt level of over 60% of GDP in the Euro Zone. 6. Mineral sector performance has been robust oil production has hovered around 2.2 Million Barrel Per Day (MBPD) over the last 10 years, prices have recovered well since the 2008 crisis. It should be noted that the benchmarks for price have risen considerably over recent years (almost doubling since 2008) this trend and the associated increases in Statutory Allocation are unlikely to continue in the near future. Table 1: Nigeria Key Macroeconomic and Mineral Indicators Indicator 2010 2011 2012 2013 GDP Growth 8.0 7.4 6.6 6.2 Inflation (%) 13.7 10.8 12.2 9.9 Exchange Rate (NGN:USD FX Rate) 147.91 151.39 155.12 154.74 Unemployment 19.7% 21.1% 23.9% TBC Balance of Payments (% of GDP) -4.39% 0.13% 4.31% TBC Oil Price (Average) 81 114 113 111 Oil Price Benchmark 60 75 70 79 Oil Production (Average mbpd) 2.4675 2.0808 2.3183 2.2000 Source: (Economic Outlook) National Bureau of Statistics, (WEO) IMF; CBN 7. Yobe State is not yet in a position to provide state level GDP and Inflations figures. 8. A more detailed analysis of prior economic performance at global, African, national and state level, as well as mineral sector performance is provided in section 2.A of the main EFU-FSP-BPS document. Page 4 of 7
Value (NGN Million) 1.C Fiscal Performance Summary Figure 1: Revenue and Expenditure Performance Fiscal Performance (Revenue and Expenditure): 2010-2013 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2010 2011 2012 2013 ACT Revenue 45,699,610,567 51,530,628,685 54,870,428,096 61,925,789,276 BUD Revenue 59,637,209,386 66,564,000,000 74,237,778,000 80,975,758,877 ACT Rec Exp 20,047,492,282 25,659,834,536 29,540,626,433 32,689,837,917 BUD Rec Exp 21,739,781,000 26,356,145,001 32,418,840,217 35,348,137,600 ACT Cap Exp 22,538,136,291 28,477,325,061 25,646,443,832 34,216,972,226 BUD Cap Exp 43,097,428,386 42,657,854,999 45,881,159,783 51,160,161,400 9. Revenue Performance recurrent revenue performance has been varied federal transfers on the whole have been, in the aggregate, around 10-15% below budget in recent years. Internally Generated Revenue (IGR) suffered considerably in 2011 and 2012 due to security issues but has rebounded well. Performance on capital receipts appears low, but is distorted by non-reporting on the accounts of grants and loans from development partners that are part of the budget. 10. Expenditure Performance Personnel and overheads performance have been consistently around 90-95% of the budget. The revenue short-falls as noted above (particularly capital receipts) and the non-reporting of development partner funded capital expenditure means performance has been on average of 60%. 11. Debt position - Yobe State has limited debts (mostly external) and is considerably well within the accepted ratios. There is considerable capacity to draw down more loans whilst still remaining fiscally sustainable. The limiting factor is likely to be the ability to negotiate sufficient loan facilities. 12. More detailed analysis of prior fiscal performance by major revenue and expenditure head, as well as sector expenditure performance, can be found in section 2.B of the main EFU- FSP-BPS document. 1.D Macro-Fiscal Strategy and Key Assumptions Macro-economic and Mineral Assumptions The Macroeconomic framework is based on the latest Nigerian national real GDP growth and inflation (CPI) as estimated in the October 2013 IMF World Economic Outlook document. The Oil benchmarks and Nigerian Naira: United State Dollar (NGN:USD) exchange rates are based on the figures in the 2014-2016 Federal Fiscal Framework document with the exception of the oil price which is based on the current year benchmark of $79. 13. Revenue Assumptions Statutory Allocation and Value Added Tax (VAT) forecasts are based on the macroeconomic and mineral assumptions in the above table using elasticity based forecasting. IGR is based on 30% increment in 2014, 20% in each of 2015 and 2016 and 15% in 2017. Excess crude is based on the current level of Subsidy Re-investment Programme (SURE-P), plus 50% of the 2013 actuals for the other sources of Excess Year Page 5 of 7
Crude. Capital receipts are minimal and may be increased within the annual budgets. Loans are forecast to be drawn down to balance the budget (see below). 14. Expenditure Assumptions personnel and overheads expenditures are based on 10% and 5% annual increment (based on 2013 actuals) which are lower than the historical trend of around 15%. Capital Expenditure is set at 50% of total expenditure (i.e. a balanced budget) with loans being the balancing item to achieve sufficient revenue to achieve the 50%. Figure 2: Macro-Fiscal Framework Macro-Economic Framework Item 2015 2016 2017 National Inflation 7.90% 7.60% 7.30% National Real GDP Growth 7.20% 7.00% 6.80% Oil Production Benchmark 2.5004 2.5497 2.5497 Oil Price Benchmark 79 79 79 NGN:USD Exchange Rate 160 160 160 Fiscal Framework Recurrent Revenue 2015 2016 2017 Statutory Allocation 38,544,307,022 40,595,386,368 42,646,946,557 VAT 9,287,994,006 10,275,179,196 11,313,108,623 IGR 5,249,541,535 6,299,449,842 7,244,367,318 Excess Crude (SURE-P) 6,790,842,016 6,790,842,016 6,790,842,016 Total Recurrent Revenue 59,872,684,579 63,960,857,422 67,995,264,514 8.15% 6.83% 6.31% Recurrent Expenditure Personnel 22,729,266,829 25,002,193,512 27,502,412,863 Overheads 15,330,615,163 16,097,145,922 16,902,003,218 Total 38,059,881,992 41,099,339,433 44,404,416,081 7.93% 7.99% 8.04% Transfer to Capital Account 21,812,802,587 22,861,517,988 23,590,848,433 Capital Receipts Grants 2,196,123,464 2,323,216,777 2,465,187,740 Miscellaneous 250,000,000 200,000,000 0 Total 2,446,123,464 2,523,216,777 2,465,187,740 Capital Expenditure 38,059,881,992 41,099,339,433 44,404,416,081 Loans 13,800,955,941 15,714,604,668 18,348,379,907 Total Budget Size 76,119,763,985 82,198,678,867 88,808,832,161 Capital Expenditure Rate 50.00% 50.00% 50.00% Deficit to Total Expenditure 18.13% 19.12% 20.66% 15. More detailed justification for the macro-fiscal framework and underlying assumptions and targets can be found in sections 3.A-3.C of the main EFU-FSP-BPS document. 1.E Sector Allocations (3 Year) 16. It is apparent that the current actual capital expenditure profile by sector does not reflect the current priorities of the state in line with the Vision 2020, Medium Term Development Plan and the Development Action Plan. Based on the priority sectors of Government, which include Education, Health, Infrastructure, Agriculture, Investment and Transport, an indicative allocation by the five main sectors of government is provided in the tables below. 17. More detailed analysis of prior sector expenditure and forward envelopes can be found in sections 2.B and 4 respectively of the main EFU-FSP-BPS documents. Page 6 of 7
18. The above percentages translate to envelopes as per the table below. Figure 3: Capital Expenditure by Sector A Economic Sector 2015% 2015 2016% 2016 2017% 2017 1 Agriculture 8.00% 2,983,894,748 10.00% 4,027,735,264 10.00% 4,351,632,776 2 Livestock 0.10% 37,298,684 0.10% 40,277,353 0.10% 43,516,328 3 Forestry 0.50% 186,493,422 0.50% 201,386,763 0.50% 217,581,639 4 Fisheries 0.05% 18,649,342 0.05% 20,138,676 0.05% 21,758,164 5 Industry 1.00% 372,986,844 1.00% 402,773,526 1.00% 435,163,278 6 Energy 2.50% 932,467,109 2.50% 1,006,933,816 2.50% 1,087,908,194 7 Commerce, Finance,Hotels & C 1.20% 447,584,212 1.20% 483,328,232 1.20% 522,195,933 8 Transport (Works) 34.00% 12,681,552,680 24.00% 9,666,564,635 19.00% 8,268,102,274 Sub total 47.35% 17,660,927,041 39.35% 15,849,138,266 34.35% 14,947,858,585 B Social Sector 0 1 Education 18.00% 6,713,763,183 21.00% 8,458,244,055 24.00% 10,443,918,662 2 Health 8.50% 3,170,388,170 11.50% 4,631,895,554 13.50% 5,874,704,247 3 Information 1.50% 559,480,265 1.50% 604,160,290 1.50% 652,744,916 4 Social Development 1.50% 559,480,265 1.50% 604,160,290 1.50% 652,744,916 Sub total 29.50% 11,003,111,884 35.50% 14,298,460,189 40.50% 15,448,296,354 C Regional Development Sector 0 1 Water Supply 3.50% 1,305,453,952 5.50% 2,215,254,395 5.50% 2,393,398,027 2 Environment,Sewage & Draina 0.01% 3,729,868 0.01% 4,027,735 0.01% 4,351,633 3 Housing 3.75% 1,398,700,663 3.75% 1,510,400,724 3.75% 1,631,862,291 4 Town & country planning 0.35% 130,545,395 0.35% 140,970,734 0.35% 152,307,147 5 Community Development 0.25% 93,246,711 0.25% 100,693,382 0.25% 108,790,819 Sub total 7.86% 2,931,676,590 9.86% 3,971,346,971 9.86% 4,290,709,917 D Governance 1 General Administration 14.23% 5,307,602,783 14.23% 5,731,467,281 14.23% 6,192,373,440 Sub total 14.23% 5,307,602,783 14.23% 5,731,467,281 14.23% 6,192,373,440 E Law and Justice 1 Judiciary 0.70% 261,090,790 0.70% 281,941,469 0.70% 304,614,294 2 Justice 0.36% 134,275,264 0.36% 144,998,470 0.36% 156,658,780 Sub total 1.06% 395,366,054 1.06% 426,939,938 1.06% 461,273,074 Planning Reserve 2.00% 761,197,640 2.00% 821,986,789 2.00% 888,088,322 GRAND TOTAL EXPENDITURE 100.00% 38,059,881,992 100.00% 41,099,339,433 100.00% 44,404,416,081 1.F Major Fiscal Risks and Other Considerations 19. Fiscal risks are mainly due to high dependence on federal transfers and on high levels of loan draw down on the revenue side, on the expenditure side on recurrent increments considerable lower than previous trend, and the ongoing security risks facing Nigeria and Yobe state that affect federal transfers. A major source of mitigation is to boast internal revenue (IGR) to decrease dependence on federal transfers and capital receipts. 20. In addition, there must be more realism in budgeting which, based on recent trend, has become less realistic in recent years. Revenue estimates must be based on thorough analysis as is contained in this document, and not incrementally increases from prior year budgets which themselves may have been unachievable. 21. Adoption of International Public Sector Accounting Standard (IPSAS) and the new chart of accounts should rectify the reporting of development partner loans and grants and associated expenditure going forward. 22. A more detailed analysis of the fiscal risk and summary of key points and recommendations can be found in sections 3.D and 5 respectively of the main EFU-FSP-BPS document. Page 7 of 7