OVERVIEW OF THE 2013 BUDGET by Okonjo-Iweala

Dr. Ngizi Okonjo-Iweala

Nigeria's Finance Minister and Coordinating Minister of Economy today paste on her facebook page, the overview of the Federal Government Budget of the 2013 fiscal year. See the full report after the cut...

OVERVIEW OF THE 2013 BUDGET
By DR. NGOZI OKONJO-IWEALA
7 MARCH 2013


PROTOCOLS
1. It is with great pleasure that I present to you today, the 2013 Federal Government Budget. I thank Mr President, my colleagues and the Honourable Members of the National Assembly for their contributions to the planning, preparation, passage and signing into law of the 2013 Budget.

2. I would also like to acknowledge the effort of the Leadership of the National Assembly, all relevant committees and the Budget Office for completing the 2013 Budget in record time. I am positive that the good work would translate into the development of our economy and improve the living standards of our people.

WORLD ECONOMIC REVIEW
3. The 2013 Budget was designed against the backdrop of global economic uncertainty. Growth in the US is forecast to average only 2 per cent in 2013. Similarly, the near-term outlook for the Euro area has been revised downwards, with growth expected to contract by 0.2 per cent. In Asia, the short-term outlook for Japan is weak, with the Japanese economy expected to expand by only 1.2 per cent in 2013. Overall, global growth will average 3.5
per cent in 2013, a moderate increase from 3.2 per cent in 2012.

4. Against this backdrop of global economic uncertainty, the international natural resources map is also changing. There have been discoveries of new oil and gas deposits in many African countries, as well as the discovery of shale oil and gas in the US. These developments suggest that there could be lower demand for Nigeria’s crude oil in the future, and thus we should be even more prudent in managing our natural resources today!

DEVELOPMENTS IN THE DOMESTIC ECONOMY
5. In spite of the turbulent global economic environment and changing global oil map, the Nigerian economy has been resilient, experiencing a robust growth in 2012 of 6.5 per cent
compared with global growth of 3.2 per cent. Inflation is now down to single-digits at 9 percent in January 2013, compared with 12.6 percent in January 2012. Our fiscal deficit is on a downward trajectory, and below our threshold of 3 percent, while the exchange rate has remained stable.

6. Government is also building up the necessary savings to cushion the economy against a possible global recession or collapse of oil prices. For instance, the balance in the excess crude account has increased from $4.22 billion in August 2011 to about $9 billion at the end of 2012. In addition, we have launched Nigeria’s Sovereign Wealth Fund, with an initial capitalization of $1 billion, and we hope to increase this Fund further in the future. Our foreign reserves have also grown steadily, and now stand at $47.38 billion as at the end of February 2013 – the highest level for almost 3 years!

7. There has been strong external validation of the management of Nigeria’s economy, despite the global economic slowdown. The leading international rating agencies – Fitch, Standard & Poor’s, and Moody’s – have upgraded the outlook for the Nigerian economy, even at a time when other developed and emerging economies are being downgraded. Nigeria’s domestic bonds have also gained international prominence, and were recently included in the JP Morgan and Barclays Emerging Market indices. All these external endorsements provide further testimony to our strong macroeconomic fundamentals!


ACHIEVEMENTS OF THE 2012 BUDGET
8. Before I discuss the 2013 Budget, let me briefly summarize the outcomes of the 2012 Budget. As you may recall, the 2012 Budget was approved late, and so implementation occurred over a compressed time schedule. However, we succeeded in releasing N1,017 billion for the implementation of various capital projects, and successfully cash-backed N739 billion. By the end of 2012, MDAs had utilized N686 billion or 92.8 per cent of the total amount cash-backed.

9. The 2012 Budget also financed a number of important projects across various parts of the country, such as: rehabilitation of tracks for the Lagos-Kano railway line; ongoing construction of the East-West Road and dualization of the Kano-Maiduguri Highway. The 2012 Budget also financed completion of work on the Treatment Plant for the Owena Dam, and ongoing work at the Hadejia Valley Irrigation Project. In addition to these major projects, the Ministry of Works, also worked to maintain the nation’s highways during the Christmas and New Year Season – and this received very positive feedback from Nigerians. The 2012 Budget also helped to energize the Agriculture sector, resulting in an increased output; for example, it helped to boost cassava output to about 1.4 million metric tonnes last year!

THE 2013 BUDGET
10. Ladies and gentlemen, let me now turn to the subject matter for today – the 2013 Budget. You will recall that, in breaking with recent practice, the 2013 Budget was prepared in record time, and submitted to the National Assembly by Mr. President on 10th October 2012. The National Assembly also worked hard to review this Budget, and returned their version to the Executive before departing for their Christmas recess. However, at the beginning of the year, when we reviewed the National Assembly’s version, there were several challenges which had to be revisited. There were three main challenging areas, namely: reductions in the wage bill, major capital expenditures which had been re-allocated, and reallocations of the budget for the SURE-P program. We successfully resolved these changes in the past two weeks, and Mr. President will send a proposal to the National Assembly for amendment of the 2013 Budget. Let me also add here that Mr. President has assigned the Minister of Special Duties to assist in overseeing the implementation of the N100 billion constituency projects across the country.

11. Now to the 2013 Budget itself. This Budget promotes the continuity of the four main pillars on which the 2012 Budget was based namely: Macroeconomic stability, Structural reforms, Governance and institutions, and Investing in priority sectors. This Budget continues the theme of fiscal consolidation with inclusive growth and is underpinned by the following parameters:

• Oil production of 2.53 million barrels per day compared to 2.48 million barrels per day in 2012.
• Benchmark oil price of $79 per barrel, up from $72 per barrel in 2012.
• Projected real GDP growth rate of 6.5 per cent.
• Average Exchange Rate of N160/$.

Revenue projections in the 2013 budget
12. Based on the above assumptions, the gross federally collectible revenue is projected at N11.34 trillion, of which the total revenue available for the Federal Government’s Budget is
forecast at N4.1 trillion, representing an increase of 15 per cent over the estimate for 2012. Non-oil revenue is projected to sustain its growth in 2013. At this point, let me commend the Federal Inland Revenue Service (FIRS) which has worked hard to achieve a 20 percent growth rate in non-oil tax revenues between 2007 and 2012. But I also believe that the gap between non-oil tax revenues currently collected and the full potential revenue remains significant. Therefore, we will support FIRS this year to embark on further reforms such as improving auditing checks, increasing controls on exemptions, and enforcing repayment of
arrears. Similarly, we will also pay greater attention to increasing internally generated revenues, and work with government entities to increase their remittances to the Treasury.

Expenditure provision
13. The 2013 Budget makes provision for an aggregate expenditure of N4.987 trillion, representing a modest increase of 6.2% over the N4.697 trillion appropriated for 2012. This is made up of N387.97 billion for Statutory Transfers; N591.76 billion for Debt Service; N2.38 trillion for Recurrent (Non-Debt) Expenditure, of which N1.717 trillion is the provision for personnel cost while overhead cost is projected at N208.9; and a total of N1.62 trillion
has been provisioned for Capital Expenditure. In addition, N273.5 billion has been provisioned for the Subsidy Reinvestment (SURE-P) programme.

14. Given the above, the fiscal deficit is projected to improve to about 1.85% of GDP in the 2013 Budget compared to 2.85% in 2012. This is well within the threshold stipulated in the Fiscal Responsibility Act, 2007 and clearly highlights our commitment to fiscal prudence.

15. Government remains focused on critical economic and social sectors. Some of these sectors are largely driven by private sector activity, while others require a great deal of public sector support. Some key allocations are as follows: Critical Infrastructure (including Power, Works, Transport, Aviation, Gas pipelines, and Federal Capital Territory) – N497 billion; Human Capital Development(i.e. Education and Health) – N705 billion; and Agriculture/Water Resources – N175 billion. We also allocated over N950 billion for national security purposes, comprised of: N320 billion for the Police, N364 billion for the Armed Forces, N115 billion for the Office of the NSA, and N154 billion for the Ministry of the Interior.

16. For 2013, the SURE-P program has a projected allocation of N180 billion, augmented by the 2012 unspent balances of N93.5 billion. This amount will be used to make further progress in the provision of social safety net schemes, maternal and child healthcare, youth development and vocational training for Nigerians.

PRIORITIES OF THE 2013 BUDGET
17. Ladies and gentlemen, let me use this opportunity to highlight some of the key priorities of Budget 2013. First, the cost of governance is coming down! Government has sustained its
policy of re-balancing its expenditure in favour of capital investment over the medium term. I am therefore pleased to announce that the share of recurrent spending in total expenditure has reduced from 74.4 per cent in 2011 to 67.5 per cent in 2013. Similarly, capital spending as a share of total expenditure has increased from 25.6 per cent in 2011 to 32.5 per cent in 2013.

18. In addition, we are continuing the roll-out of IPPIS across all MDAs which will result in savings in personnel costs. In the spirit of the Oronsaye Report, we have started trimming down allocations to agencies with duplicate functions. For the 2013 Budget, this resulted in about N100 billion of savings, and we hope to have even greater savings in 2014. However, let me add that some of these agencies with duplicate functions were established legally, and so we will require the support of the National Assembly in reviewing the relevant legislations before we implement the rationalization exercises.

19. Second, on debt management, we remain committed to the implementation of a strong strategy for managing domestic debt which progressively scales down both the stock and flow of our domestic debts. In this regard, we recently paid down N75 billion of maturing debt obligations last week, and have also set aside N25 billion in a sinking fund to be used for retirement of maturing debt obligations in the future. Government has further reduced annual domestic borrowing to finance the budget deficit from N852 billion in 2011, to N744 in 2012, and now to N577 billion in 2013!

20. We are also making concerted efforts to defray the debts of our foreign missions. In this context, we have made a provision of N13 billion in the 2013 Budget to help clear accumulated debts as at the cut-off date of June 2012. Government has also established a committee under the Chairmanship of the Minister of Foreign Affairs, which will work out a system to better manage the assets of our foreign missions.

21. Third, let me turn to infrastructure investments. We recognize that Nigeria’s infrastructure deficit remains one of the binding constraints to growth in the economy. Therefore, our strategy is to prioritize infrastructure investments in the budget, and also to
leverage additional external financing for infrastructure investments in the country. For example, Budget 2013 has some important infrastructure projects in the transportation sector, such as the second Niger Bridge. We plan to augment our domestic resources with a proposed $1 billion EuroBond as well as a Nigeria Diaspora Bond which will harness savings from Nigerians abroad. These additional financial resources will be invested in various infrastructure projects such as building the country’s gas to power infrastructure. We plan to use PPPs aggressively, working with the Sovereign Wealth Fund which will attract co-investors from home and abroad such as pensions funds, institutional investors and so on!

22. Fourth, on job creation. The objective of the 2013 Budget is to achieve inclusive growth by identifying and developing job creation opportunities. We are working on creating 3.5 million jobs in the agriculture sector, with more jobs coming in the housing and construction sectors, solid minerals sector, aviation sector and the creative industries. Government is also using the YouWin programme to support young entrepreneurs to create between 80,000 and 110,000 jobs. We also have the Graduate Internship Programme, in which participating private companies provide one-year internships to 50,000 graduates, paid by the Federal Government.

23. Let me add here that to energize the construction sector, we are developing a private sector led Nigerian Mortgage Refinance Company to help provide long-term mortgages to help kick-start our housing and construction sectors.

24. Fifth, to support the development of the manufacturing sector, Mr. President also announced various fiscal measures to support our local entrepreneurs. Machinery and equipment imported for the solid minerals sector will attract 0% import duty and 0% VAT. For rice, there is now a 10% import duty and 100% levy which will be applied to both brown and polished rice. And for sugar, we will implement a gradual and phased increase in tariffs on raw and refined sugar, in order to support domestic production.

25. We recognize that our manufacturing sector – especially our SMEs – cannot grow without a reliable source of long-term finance and more affordable interest rates. As a result, Mr. President and Mr. Vice President have set up a committee to look into the issue. We now have approval to restructure existing DFIs as retail outlets for financing domestic lenders, while we build a strong wholesale institution that will increase and drive lending costs down.

26. Finally, on gender empowerment and sports development. The Jonathan Administration is very gender-friendly and committed to improving the position of women in society. We
have developed an innovative approach to gender mainstreaming beginning with five pilot ministries namely: Agriculture, Water Resources, Health, Works and Communication Technology. These ministries have signed MOUs with the Ministry of Women Affairs to deliver on specific services for women. The Government is also determined to take our sports to great heights again given the importance that Nigerians give to the performance of our sportsmen and women. We all remember our recent celebrations following the sterling performance of the Super Eagles who won the African Cup of Nations after 19 years! Mr. President wants to ensure many such celebrations for Nigerian sports in the future. In this regard, he has now tasked me to work on developing a sustainable model for sports financing in Nigeria.

CONCLUSION
27. To conclude, Ladies and gentlemen, the 2013 Budget gives priority to our concerns for security, infrastructure, food security and human development. It is a Budget for everyone! For expectant mothers, children and the elderly – there will be increased access to healthcare; for smallholder farmers – there will be greater support from the government for access to market and extension services; and for tax-payers – the government will drive transparency and accountability;

28. I am confident that Budget 2013 will consolidate our recent macroeconomic performance, and lay the foundations for more inclusive growth and job creation in the country!