Market News

Forex Crises - 2024 Budget Suffers Major Dislocations - VANGUARD

FEBRUARY 20, 2024

By Emeka Anaeto, Business Editor, Peter Egwuatu and Nkiruka Nnorom

THERE are indications that the Federal Government may be forced to review the 2024 Appropriation Act as recent developments in the foreign exchange market may have put the financial assumptions in complete disarray.

Sources close to the Finance Ministry told Vanguard that all the major components of the budget has been affected fundamentally by a drastic change in the budget parameters occasioned by the current foreign exchange market realities.

He pointed out that since the budget was passed into law, the official exchange rate benchmark which was N800/USD1 has moved up by almost 50 per cent, a development which has equally doubled both US dollar-based revenue and expenditure.

Consequently, the Naira values have gone up by about 100 per cent. The Senate approved the 2024 Appropriation Bill of N28.7 trillion, against the N27.5 trillion estimate presented by President Bola Tinubu.

The approved budget includes N1.7 trillion for statutory transfers, N8.7 trillion for recurrent expenditure, and N9.9 trillion for capital expenditure. All these figures have now been significantly altered by the development in the benchmark exchange rate which the Senate had moved from N750/ USD1 presented by President Tinubu, to N800/ USD1. Though the high level Finance Ministry official said he doesn't have details of what is being done, he hinted that all the relevant ministries and government agencies are already working on what may become an amendment to the Act.

Major budgetary dislocation

Financial experts who spoke to Vanguard also indicated that the barely six weeks old budget has suffered a major dislocation following the massive depreciation of the Naira across all foreign exchange market segments. According to their calculations, the implication on the 2024 budget is doubled fold with revenue and expenditure rising at the same time. However, they caution that a more prudent fiscal measure is needed to prevent the worsening of the current economic situation.

Rising revenue, expenditure

The major positive impact of the rising exchange rate, according to them, will be a rise in Naira revenue from the oil sector and other US Dollar-denominated revenues, with forecast at over N15 trillion, about 88 per cent higher than the N7.9 trillion actual budgeted amount. They also noted that this development may significantly reduce budget deficit to about N2.2 trillion from N9.2 trillion, if properly managed. But this is just one side of the development.

They also see a possibility of this exchange rate revenue gain being wiped out by a corresponding rise in expenditure as a result of US dollar-denominated obligations such as debt servicing and general foreign exchange denominated expenditures in the budget. At a debt service expenditure budget of N8.25 trillion, they forecast a likely rise to over N16 trillion at current exchange rate of about N1650/ USD1. They also pointed out that a quantum leap in Naira revenue could spark off profligacy and fiscal indiscipline, which will erode the exchange gains. The impact of this fiscal misbehaviour, according to the analysts, will further compound inflationary pressures in the economy, which will also drive up cost of executing the capital expenditure budget significantly.


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