A Reality Check on 2022 Federal Government of Nigeria Budget

The presentation focuses on key four areas: (i) global conditions and emerging risksfor implementing the 2022 budget; (ii) reality checks on the macroeconomic assumptions underlying the 2022 budget; (iii) managing budget implementation risks; and (iv) fiscal strategy in the near to medium term.

The presentation recommends that fiscal policy must be agile and respond flexibly to emerging challenges with focus on: (i) rationalizing and prioritizing expenditure; (ii) assessing credit to the private sector in view of potential FGN’s additional domestic borrowing on top of the budgeted amount; and (iii) limiting or avoiding recourse to central bank financing in view of possible implications for inflation and exchange rate.

The presentation highlights that in a tighter global financial environment, Federal Government of Nigeria ‘s access to external financing could be curtailed and new bonds issuance would likely attract higher interest rates. Already, borrowing externally has become more expensive. This observation is supported by the increasing trends of the spreads between Nigeria’s 10-year bond yield and that of the US. The EMBIG spreads and cost of Nigeria credit default SWAP (insurance against default) have also increased. With respect to the domestic environment, the paper concludes that lower-than-envisaged growth, reduced non-oil revenue, and higher-than-planned financing requirements would likely emerge in 2022. Against this background, the presentation raises the important policy question of the extent to which the economy could absorb additional domestic financing of the Federal Government budget deficit, without adverse implications for the exchange rate and inflation.