Cablegate: Nigeria: Passage of the 2008 Budget

DE RUEHUJA #0882/01 1360905
P 150905Z MAY 08




E.O. 12958: N/A

REF: A. 07 ABUJA 2417
B. 07 ABUJA 2227
C. 07 ABUJA 1907
D. 07 ABUJA 1793

1. (U) SUMMARY: President Umaru Musa Yar'Adua signed the 2008
budget appropriation bill into law on April 14, 2008. Due to
disagreements between the President and the National Assembly (NA)
budget passage was held up for five months, stalling government
economic activities. The Government of Nigeria's (GON) 2008 budget
is 2.7 trillion naira (N) ($23.4 billion), a 21.5% increase above
2007. The budget focused on four critical sectors - security,
education, food security and power - which will receive 60% of
capital spending. The 2008 budget set the crude oil benchmark price
at $59 per barrel, up from the $40 per barrel in the 2007 budget.
The crude oil production target remains 2.45 million barrels per day
(MBPD) roughly the same as 2007's 2.5 MBPD. Joint venture cash
calls (JVCC) between the GON and oil companies are $4.9 billion, up
from $4.5 billion in 2007, but far short of $12 billion requested by
the Nigerian National Petroleum Corporation (NNPC). The 2008 budget
places debt service at N372.2 billion ($3.2 billion), a 25% increase
from 2007. The 2008 budget is the administration's first
opportunity to fund the President's Seven Point Agenda and advance
his economic and development plans. END SUMMARY.
Budget Stalemate
2. The initial N2.4 trillion ($20.5 billion) budget was presented
in November 2007 to the NA (reftels A & B). The NA increased
appropriations to N2.9 trillion ($24.8 billion) and sent a spending
summary back to the President. President Yar'Adua refused to sign
it without full details and demanded cuts. The NA made slight
adjustments to trim the budget to N2.7 trillion ($23.1 billion) and
returned it to Yar'Adua on March 19, 2008, and again only provided
an executive summary. Yar'adua refused to sign the summary and
again called for the detailed budget, which was finally forwarded to
him on March 28, 2008. The budget contained expenditure items and
clauses to which Yar'adua objected and again he refused to sign it.
After a series of meetings with the NA leadership, Yar'adua assented
to the 2008 budget on April 14, 2008, based on a political
compromise that a supplementary bill would be presented to remove
spending clauses objected to by the Executive and to accommodate
some spending increases regarded crucial by the NA.
What has changed?
3. The approved 2008 budget has few changes from earlier versions
reported in reftels A and B. The most significant changes are the
benchmark crude oil price increasing from the proposed $53.83 per
barrel to $59 per barrel, and crude oil production estimated at 2.45
MBPD from 2.5 MBPD.
Federal Expenditures
4. The 2008 budget stands at N2.7 trillion ($23.1 billion), a 21.5%
increase from the 2007 budget. It is composed of:
-- Recurrent (non-debt) expenditures including payroll and overhead
of N1.3 trillion ($11.1 billion);
-- Capital expenditures of N860.3 billion ($7.4 billion);
-- Statutory transfers of N162.5 billion ($1.4 billion); and
-- Debt service of N372.3 billion ($3.2 billion).
Capital Expenditures - Big Jump on Transpo
5. Four critical sectors comprise 60% of capital spending:
security, education, food security and power. Though total spending
by Ministries, Departments and Agencies (MDAs) rose only slightly,
these priority sectors received significantly higher allocations in
-- Security and the Niger Delta: N444.6 billion ($3.8 billion), 20%
of the total budget, and a 6.5% increase from 2007;
-- Education: N221 billion ($1.9 billion), 8% of total budget, and a
19% increase from 2007;
-- Transportation: N189.7 billion ($1.6 billion), 7% of total
budget, but a 400% increase from 2007.
-- Agriculture and water resources: N134.8 billion ($1.2 billion),
5% of total budget, and a 16% increase from 2007;
-- Energy: N156.1 billion ($1.3 billion), excluding expenditures on
National Integrated Power Projects (NIPP) for which GON has decided
to seek alternative funding arrangements mainly from the private
sector. (COMMENT: Former President Obasanjo's administration, in

ABUJA 00000882 002 OF 003

December 2004, embarked on the NIPP under which a sum of $2.5
billion was spent, partly financed from the Excess Crude Account.
President Yar'Adua made a policy shift by declaring that the private
sector will play a leading financing role; however, private sector
lenders have been reluctant to led funds to a power sector regarded
as bankrupt and corrupt. END COMMENT).
Statutory Transfers - Big Increases
6. Appropriated statutory transfers in the 2008 budget are N162.57
billion ($1.3 billion), a 26% increase over 2007. Statutory
transfers consist of:
-- N78 billion ($666.6 million) to the National Judicial Council, an
81% increase;
-- N69.9 billion ($597.4 million) to the Niger Delta Development
Commission, a 74% increase;
-- N44 billion ($376 million) to the Universal Basic Education
Commission, a 24% increase.
Budget 2008 Parameters
7. The 2008 budget parameters are:
-- Crude oil benchmark price of $59 per barrel, up from $53.8 in the
November 2007 submission and from $40 per barrel in the 2007 budget.
(NOTE: Post will report septel on the current workings of the
Excess Crude Account. END NOTE).

-- Crude oil production of 2.45 million barrels per day MBPD, a
slight decrease from 2.5 mbpd in 2007.

-- Joint venture cash calls (JVCC) between the GON and the oil
companies are $4.9 billion, up from $4.5 billion in 2007. (COMMENT:
In early 2007, the NNPC requested an additional $7 billion in JVCC
funding to reverse several years of underinvestment in new oil and
gas production. Yar'Adua announced in November 2007 that the GON
plans to stop funding cash call payments and instead urge joint
ventures to raise money from international financial markets. He
did not give a time frame but stated the proposed policy will free
GON resources paid under joint venture agreements for critical areas
like power, education and health. The JVCC requirements presented
by oil companies have often been more than the government could
afford and the GON has offered lower amounts -- about $4 billion per
year in recent years. END COMMENT).
-- GDP growth of 11%, up from 10% in 2007. (COMMENT: Strong
non-oil sector growth in areas like agriculture, mining and
quarrying, telecommunications, and rising oil prices are expected to
push GDP growth in 2008. However, GDP growth target of 11% will
require politically tough and pragmatic economic reforms (reftels C
& D). A major challenge for the President is bringing greater
stability to the turbulent Niger Delta region, and finding a
solution to the ongoing electricity crisis under which nationwide
power cuts are commonplace. END COMMENT).
-- Inflation rate at 8.5%, down from 9% in 2007.
-- Exchange rate of N117 to $1, down from N127 in 2007.
-- Value added tax (VAT) rate of 5%, no change from 2007.
Federal and State Debt
8. At the end of September 2007 the total national debt was N2.6
trillion ($21.8 billion) consisting of N2.15 trillion ($18.4
billion) of domestic debt and N397.5 billion ($3.4 billion) of
external debt (includes state and federal government debt). The
budget estimates debt service for 2008 at N372.2 billion ($3.2
billion), a 25% increase from 2007, comprising N306.2 billion ($2.6
billion) for domestic debt service and N66 billion ($564.1 million)
for foreign debt service. Nigeria's total indebtedness (including
state and federal government debt) as a percentage of GDP is 10.4%,
which is down from 110% in 1986, 90% in 1996, and 23% in 2006.
Deficit Financing
9. The 2008 budget appropriation raised the budget deficit from
N468 billion ($4 billion) to N560 billion ($4.7 billion). Total
projected federal expenditure is N2.7 trillion ($23.4 billion),
projected budget deficit is N560 billion ($4.7 billion) or 2.5% of
GDP. The projected deficit will be partly financed by the sale of
federal government properties valued at N120 billion ($1 billion);
N75 billion ($641 million) in other privatization proceeds and
signature bonuses; and N200 billion ($1.7 billion) from the domestic
bond market.

ABUJA 00000882 003 OF 003

10. COMMENT: The Nigeria's 2008 budget stalemate lasted five
months. Because public spending is the engine of the economy, the
delay stalled economic activities. The late approval date will make
it difficult to fully implement all capital projects in 2008 thereby
hurting power, security and infrastructure sectors. Appropriations
not spent will return to the federation account. The impact of the
2008 budget will be measured in terms of development improvements
for schools, hospitals and roads, and power projects added to the
national grid. In addition, with the Public Procurement Office and
civil society organizations tracking budget spending we are likely
to see a more transparent picture.

11. COMMENT CONTINUED: The passage of the 2008 budget is the
administration's first opportunity to launch its Seven Point Agenda
and advance its economic plan. The Yar'Adua administration hopes to
entrench sustainable government expenditure, macroeconomic
stability, employment of a realistic budget benchmark oil price, and
optimal resource allocations to improve key social indicators
(reftels C & D). It is a positive development that the NA and
Executive have taken ownership over the budget and are interested in
the details, which portends well for greater transparency. END


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