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Cablegate: Nigeria: National Assembly Passes 2003 Budget

This record is a partial extract of the original cable. The full text of the original cable is not available.

311447Z Mar 03

UNCLAS SECTION 01 OF 02 ABUJA 000594

SIPDIS


E.O. 12958: N/A
TAGS: EFIN ECON NI
SUBJECT: NIGERIA: NATIONAL ASSEMBLY PASSES 2003 BUDGET


REF: (A) 02 Abuja 1194
(B) 01 Lagos 2367
(C) 01 Abuja 997


1. Summary. On March 5, Nigeria's National Assembly passed
the fiscal year 2003 budget, after increasing allocations
by 28 percent with respect to the initial estimates
submitted by President Obasanjo. The legislators proposed
larger capital expenditures and more funding for the
forthcoming elections, especially the budgetary allocations
for security and the electoral commission (INEC). $1.8
billion (naira 225 billion) was allocated to service
foreign debt. Obasanjo has merely stated that "the
government will continue to make debt service payments."
Although the President has not signed the bill, we believe
he will, if only to sustain executive-legislative comity
during the last three weeks preceding the presidential
election. End Summary.


--------------------------------------------- ------------
The President's Budget Estimates, Targets, and Priorities
--------------------------------------------- ------------


2. President Obasanjo presented the fiscal year 2003 budget
to a joint session of the National Assembly on November 19,
2002. Total budgetary expenditures were estimated at $6
billion (naira 765.1 billion). Recurrent expenditures were
put at $4 billion (naira 508.8 billion) comprising
personnel charges ($2.7 billion - naira 343.3 billion) and
administrative charges ($1.3 billion - naira 165.4
billion). Capital expenditures were set at $2 billion
(naira 256.4 billion). The projected federally-collectible
government revenue from crude oil was $8.8 billion (naira
1,120.2 billion), predicated on a crude oil price of $21 a
barrel and an OPEC quota of 1.7 million barrels per day.


3. Comment. Although these figures in the sentence
immediately above were derived from Obasanjo's budget
submission speech, the data do not immediately add up. The
Presidency estimated that gross federally collectible
revenue would total $14.3 billion (1.819 trillion naira) in
2003; this is the revenue to be shared among the federal,
state, and local governments. (Reftels provide details on
Nigeria's revenue sharing within the federation.) Of this
$14.3 billion, the Presidency estimated that $8.8 billion
would accrue from crude oil sales. But this figure
apparently should be $13 billion (21 x 365 x 1.7 million).
Moreover, $8.8 billion equals 62 percent of $14.3 billion
whereas the federal government's share of federally
collectible revenue is 46.6 percent of total revenue
collectible. Forty-six point six percent of $14.3 equals
$6.7 billion. The discrepancy may be simply apparent if
the difference between $8.8 billion and $6.7 billion is
funding for cash calls. This $2.1 billion would comprise
the federal government's share of the costs of running the
joint venture oil operations. End Comment.


4. The President's announced macroeconomic targets included
an exchange rate of naira 126 to the U.S. dollar, real GDP
growth of 5 percent, inflation at 9 percent, unemployment
at 13 percent, and non-oil export growth at 10 percent.
Obasanjo's priority is infrastructure: roads, airports,
energy and water supply, telecommunications, maritime ports
and railways. His other priorities are enhancement of the
security environment, revitalization of manufacturing, and
promotion of technology, particularly information and
communications technology.


--------------------------------------------- -
National Assembly's Version of the 2003 Budget
--------------------------------------------- -


5. More than three months after Obasanjo submitted his
2003 budget to the National Assembly, the legislators
passed their amended version of the bill. (Nigeria's
fiscal year is January 1 - December 31.) Their gross
expenditures estimate totaled $7.7 billion (naira 976.3
billion), and comprised recurrent expenditures of $4.7
billion (naira 594 billion) and capital expenditures of $3
billion (naira 382.4 billion). The Assembly's estimate of
federally collectible government revenue totaled $19
billion (naira 2,433.0 billion), predicated on a crude oil
price of $22 a barrel. This $19 billion comprises $16.8
billion in oil revenue and $2.2 billion in non-oil revenue.
The national legislature's priorities also include
infrastructure, security, and funding for INEC. While the
legislators would allocate $1.8 billion (naira 225 billion)
to service foreign debt, Obasanjo merely stated in his
budget submission speech that "the government will continue
to make debt service payments. However, debt payments as a
share of government revenue will be in line with the share
of expenditures on key social amenities and services."


-----------------------------------
Why the Change In Budget Estimates?
-----------------------------------


6. On March 13, EconOff met with the Chairman of the House
of Representatives Committee on Appropriation, Jubrin
Barau. He confirmed that the National Assembly's changes in
expenditure estimates were based on its view that Nigeria's
roads, electric power, telecommunications facilities, and
water supply need to be improved in order to reduce the
cost of doing business and attract domestic and foreign
investment. This need justified, he said, larger
allocations for the Ministries of Water Resources, Power
and Steel, and Works and Housing, from $197 million (naira
25.1 billion) to $354 million (naira 45 billion), $241
million (naira 30.6 billion) to $319 million (naira 40.6
billion), and $307 million (naira 38.9 billion) to $464
million (naira 59 billion), respectively.


7. Barau asserted that the National Assembly believes--as
does the Presidency--that enhancement of personal and
physical security should be the government's top priority,
especially prevention of political assassinations, in the
run-up to the April national, state, and local elections.
The Assembly, he said, allocated more funding for INEC to
ensure a hitch-free election. The allocation for the police
forces was increased from $377 million (naira 47.9 billion)
to $519 million (naira 65.9 billion), while INEC's was
raised from $15 million (naira 1.9 billion) to $105 million
(naira 13.4 billion).


8. Barau explained that the National Assembly raised
Nigeria's estimated oil reference price to $22 per barrel
because the Assembly believes the price of oil will not
fall soon below $25 a barrel on the international market.
Barau opined that the time lag associated with post-war
Iraqi oil's reemergence on the market will keep the price
of oil above $22 per barrel for some time. He also
asserted that OPEC will modify its quotas during the year
to ensure that the price does not fall below $25 a barrel.


-------------
Barau's Fears
-------------


9. Barau disclosed that he shares the public's pessimism
that the budget will not be properly implemented following
its enactment. (Comment. To Barau, proper implementation
of the budget means appropriating and obligating budgetary
funds as deemed fit by the National Assembly. Neither the
international financial institutions nor we subscribe to
this view. Government budget planning in Nigeria is
rightly considered an academic exercise, in large part
because the state and federal legislatures have encouraged
unsustainable budgets. If Barau is pessimistic about the
proper implementation of the fiscal year 2003 budget, he
and his peers should work to ensure fiscal discipline. End
Comment.)


-----------------------------------
Will the President Sign the Budget?
-----------------------------------


10. Reflecting his deep cynicism, Barau said Obasanjo
should sign the budget bill as is. Because elections are
fast approaching, he said the President should not repeat
last year's disagreement with the National Assembly.
Obasanjo could express his reservations later, which could
lead to re-prioritization of projects.


11. At a press conference on March 18, Magnus Kpakol, the
President's Chief Economic Advisor, stated that Obasanjo
might not sign the bill before the end of March because the
National Assembly and the Presidency are trying to
harmonize their budget estimates.


-------
Comment
-------


12. Uppermost on the President's mind is winning the April
2003 elections. Obasanjo will thus likely sign the 2003
budget bill to avoid another dispute that could affect his
electoral fortunes. Another compelling reason to sign the
bill is that the budget is of little significance. What
counts are expenditure obligations, and the President has
demonstrated, time and again, that he can keep expenditures
down when revenue falls short of expectations. Whether he
will do this in 2003 is an open question. End Comment.


JETER

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