Nigerian President Muhammadu Buhari presented a record 13.08 trillion naira ($34.4 billion) budget for 2021 to lawmakers on Thursday, an increase from last year as the country tackles the crisis brought about by the coronavirus pandemic.
The budget is a 21% rise from the revised 2020 spending plan of 10.8 trillion naira, though economists say budget implementation may differ from the figures unveiled.
The plan for Africa’s top oil exporter assumes crude production of 1.86 million barrels a day and an oil price of $40 per barrel, Buhari said.
Nigeria’s economy has been hobbled by the pandemic that triggered a crash in the price of oil, its main export, and an exodus of foreign investors leading to higher inflation, contracting growth and larger funding gap.
The West African nation now faces a possible recession in the third quarter after its economy contracted 6.1% in the second quarter. The government expects the economy to shrink by as much as 8.9% this year.
Buhari told lawmakers at a joint session of the upper and lower chambers of parliament that the economy could relapse into a second recession in four years unless it acts quickly. He said he wanted to finish old projects rather than start new ones.
Nigeria revised its 2020 budget in June, as the government made plans to respond to the virus amid lower oil prices. But it has struggled to fund the spending plan due to low revenues.
The government decided to shelve a eurobond issue this year as the impact of the pandemic rattled markets. It has approached concessionary lenders for a budget support loan, but the World Bank has asked for reforms as part of its requirement.
Government spending plans provide direction for the local debt markets. However, treasury yields are at historic lows due to excess liquidity on the money markets after foreign investors dumped local assets as oil prices crashed.
Amaka Anku, Africa director at Eurasia Group, said in a note that the government had made incremental fiscal and regulatory reforms over the past year, including removing petrol and electricity subsidies.
But she added: “…Without visionary leadership at the top, the administration will struggle to make progress addressing more difficult challenges such as export diversification, productivity growth, and expansion of the revenue base.”
Nigeria expects a deficit of 3.64% of GDP in 2021, breaching its statutory limit of 3%, Buhari said as the country battles increased costs brought about by the virus. The government aims to fund the gap through new borrowings and privatisation.
Buhari said the government was targeting a return to growth in 2021 with inflation moderating. He expects the currency to be stable at 379 per dollar after the naira was devalued twice this year to adjust to the lower oil price environment. ($1 = 380.50 naira)