Market & business expectations from Nigeria’s 2021 budget

President Muhammadu Buhari is set to present Nigeria's 2021 budget to a joint sitting of the National Assembly, with the proposed spending plan being predicated on a 379 naira to a dollar exchange rate and an oil benchmark of $40 per barrel. Dayo Amzat, MD and CEO of Zedcrest Capital, provided insights into the budget assumptions and highlighted three key points to consider. Amzat first emphasized that the budget assumptions are a fair estimate of where oil prices and general macroeconomic indicators are expected to be in the coming year. He commended the government for incorporating these estimates into the budget, setting a realistic foundation for planning and financial projections. The alignment of the budget cycle with the general assembly was also noted as a positive step, streamlining the planning process for analysts and stakeholders. Another notable aspect of the budget is the inclusion of additional agencies into the overall budget framework. Approximately 60 agencies will now be consolidated under the federal government's budget, excluding the central bank and the NNPC. This consolidation represents an enhancement from previous budgeting practices and aims to improve transparency and efficiency in budget allocation. While the budget estimate of 13.0 trillion appears adequate for the country's needs, concerns linger around the revenue generation side. Amzat expressed apprehension regarding the potential impact of revenue shortfalls on non-oil budget expectations, especially with a proposed deficit of over 4 trillion. The performance in 2020, with a 68% revenue compared to 92% expenditure ratio, raises questions about future fiscal sustainability. Addressing the financing of the anticipated deficit, Amzat highlighted the option of tapping into the Euro-Bond market in 2021. Noting that Nigeria refrained from accessing this market in 2019 and 2020, he emphasized the necessity of leveraging the current low interest rate environment to secure funding for the budget shortfall. Despite previous engagements with multilateral development partners, the Euro-Bond market presents an attractive opportunity for diversifying financing sources. Looking ahead to 2021, Amzat acknowledged the challenges posed by the projected 6 trillion deficit and stressed the importance of effective financial management and strategic borrowing. As Nigeria navigates the economic implications of the global pandemic and fluctuating oil prices, prudent fiscal policies and revenue mobilization will be critical for sustaining budget performance. In conclusion, while the 2021 budget outlines ambitious spending plans aligned with economic forecasts, the implementation and revenue generation strategies will be key determinants of its success. With a cautious eye on fiscal deficits and financing mechanisms, stakeholders will closely monitor the government's ability to adhere to the budget targets and address economic challenges.