FG faces N1.9tn funding gap in 2015 budget

Minister of Finance, Dr. Ngozi Okonjo-Iweala

The Federal Government faces about N1.935tn funding gap in the N4.3tn budget proposed for the 2015 fiscal year, a new report has found.

This represents a 45 per cent shortfall in the budget revenue.

The 2015 Synopsis Outlook report by the Financial Derivatives Company Limited, a Nigeria-based research firm, links the drastic shortfall to lower oil prices which are expected to continue throughout the first half of the year.

According to the report, a copy of which was obtained by our correspondent on Sunday, oil supplies will grow amid slower demand especially in China, while oil prices will fall below $50 per barrel before experiencing a slight rebound in the second quarter of the year.

As a result, the FDC report concludes that the Federal Government will be forced into deficit financing, borrowing and depleting of the Excess Crude Account to finance the 2015 budget.

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The report further notes that “the naira is under pressure and could cross N200/$.”

The 2015 Synopsis Outlook says, “Further depreciation of three to five per cent at the official market is likely while the external reserves may deplete to $30bn.

“After election, the Monetary Policy Rate will be reduced cumulatively by 1.5 per cent.

“Economic growth will be weaker but outlook remains positive. Five per cent growth is expected and non-oil sector will be a major catalyst. However, political instability may undermine consumer confidence and deter investors in the first quarter.”

Quoting a report by a foreign research firm, Renaissance Capital, the 2015 Synopsis Outlook says another devaluation of the naira is likely in the short term, pointing to the persistent fall in oil prices as the reason.

“An adjustment of the midpoint of the official rate to N200/$ from N168/$ today implies an overall devaluation of 30 per cent; this could happen in the January meeting but authorities would prefer to wait until after elections.”

Also, the research firm, in the report, predicts that inflation will be between 10 and 12 per cent this year.

It links this to several factors including the recent increase in electricity tariff, the recent and further devaluation of the naira, and the proposed 70 per cent increase in import duty on cars by April this year.

Others are the imminent wage review, lower global commodity prices, and the possible decline in the price of petrol and diesel by 10 per cent.

On the capital market, the report says, “In the first half of the year, pre-election 2015, inactivity will see index close flat. Election fevers and weak earnings will usher a plunge.

A recovery is expected in the third and fourth quarters as crude oil price prices rebound

“The naira devaluation and the election crisis will impact the first and second quarters, leading to the weak earnings. But post-election will usher in new government, supplementary budget, rebound in oil prices and this will lead to a rally in the third and fourth quarters.

“Oil prices will drive the rebound in the third and fourth quarters. The positive correlation of the Nigerian bourse will also drive the recovery.”

According to the FDC study, the sectors that will be winners at the Nigerian Stock Exchange this year are aviation, cement, downstream oil and gas, soft drinks, beverages and real estate.

However, the predicted losers are automotive, transportation, ICT/telecoms, upstream oil and gas, banking.