US embassy cable - 04ABUJA537

UNCLAS SECTION 01 OF 02 ABUJA 000537 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV, ECON, EFIN, NI 
SUBJECT: NIGERIA'S NATIONAL ASSEMBLY PASSES 2004 BUDGET 
 
 
1.  Summary:  On March 23, the National Assembly passed the 
2004 budget. The National Assembly's House and Senate agreed 
in conference to increase the budget by USD 735 million 
(Naira 100 billion) to a total of USD 9.6 billion (Naira 
1.302 trillion).  According to press reports, President 
Obasanjo bristled at the National Assembly's raising the 
budget benchmark price for Nigeria's crude oil to USD 25 from 
Obasanjo's proposed USD 23 per barrel, but it is widely 
predicted that he will sign the budget within the next week. 
End Summary. 
 
Harmonized Version of the Budget 
-------------------------------- 
 
2. The Joint Finance Conference Committee of Nigeria's 
National Assembly passed a harmonized version of the 2004 
budget on March 23.  Total estimated revenue is USD 8.2 
billion (Naira 1,115 billion), and total expenditure is USD 
9.6 billion (Naira 1.302 trillion).  The budget includes USD 
323 million (Naira 44 billion) for statutory transfers; USD 
2.7 billion (Naira 369 billion) for debt service; USD 3.96 
billion (Naira 539 billion) for recurrent expenditure; and 
USD 2.57 billion (Naira 350 billion) for capital expenditure. 
 
3. The Committee estimates a USD 1.375 billion deficit (Naira 
187 billion), to be financed through USD 772 million (Naira 
105 billion) from a future "Looted Funds Account," and USD 
602 million (Naira 82.5 billion) from a future "Excess Crude 
Account." 
 
4. The Committee increased the budget benchmark price for 
crude oil from USD 23 to USD 25, and ordered Nigeria's 
Accountant General to create an "Excess Crude Account" at the 
Central Bank of Nigeria (CBN) for the expected additional 
revenue from oil sold at prices higher than the USD 25 budget 
benchmark price.  Revenues from petroleum profit tax (PPT) 
above its budget benchmark, and revenues accruing from 
royalties above their budget benchmark, are also to be put 
into this Excess Crude Account. 
 
5.  The Excess Crude Account, in effect, does away with the 
Stabilization Fund proposal where such expected excess 
revenues were to be held in escrow for use in years of 
revenue shortfalls if oil prices dipping below budget 
benchmark price targets.  The Stabilization Fund proposals of 
previous years have all faced public opposition as not 
conforming to the Constitution (all government revenue must 
be shared between the federal, state and local governments 
according to a legal formula).  With oil prices being well 
above the budget benchmark target, many also did not want so 
much revenue saved and feared the GON would draw from the 
escrow for off-budget projects. 
 
Evolution 
--------- 
 
6. President Obasanjo's December 18 budget request was USD 
8.74 billion (Naira 1.189 trillion), with USD 3.4 billion 
(Naira 459 billion) estimated for recurrent expenditure, USD 
2.2 billion (Naira 300 billion) capital expenditure and USD 
2.8 billion (Naira 379 billion) for debt service.  Total 
projected revenue was put at USD 15.88 billion (Naira 2.16 
trillion), of which USD 4.5 billion (Naira 615 billion) in 
non-oil taxes, USD 736 million (Naira 100 billion) in 
independent revenue, and USD 10.625 billion (Naira 1.445 
trillion) in oil revenue predicated on a crude oil price of 
USD 23 per barrel and average daily production of 2.24 
million barrels.  The total projected budget deficit was 
estimated at USD 1.22 billion (Naira 166 billion), to be 
financed mostly through a major bond issue. 
 
7. During hearings at the National Assembly where various 
ministries and GON agencies defended their budgets, Assembly 
members discovered that the GON had omitted capital projects 
of the some ministries and their recurrent expenditure from 
the earlier budget submission.  The budget was then revised 
upwards by about USD 463 million (Naira 63 billion) by the 
President in the last week of February, increasing capital 
expenditure from USD 2.2 billion (Naira 300 billion) to USD 
2.47 billion (Naira 336.4 billion) and recurrent expenditure 
from USD 3.4 billion (Naira 459 billion) to USD 3.9 billion 
(Naira 530 billion).  The total budget deficit was reviewed 
upwards from USD 1.22 billion (Naira 166 billion) to USD 1.71 
billion (Naira 232 billion). 
 
8. The House and Senate each increased the budget benchmark 
price for crude oil from USD 23 to USD 25.  On March 17 the 
House passed a budget of about USD 9.53 billion (Naira 1.296 
trillion), after the Senate (upper house) passed a budget of 
about USD 9.4 billion (Naira 1.274 trillion) on March 16. 
Both ordered the Accountant-General of the Federation (AGF) 
to create an Excess Crude Account at the Central Bank of 
Nigeria (CBN) for all monies earned in excess of the USD 25 
per barrel budget benchmark crude oil price.  The House also 
ordered that no money should be paid from the Federal 
Government's share of funds in the Excess Crude Account 
without the approval of the National Assembly. 
 
Financing The Estimated Deficit? 
-------------------------------- 
 
9. Both House and Senate opposed the President's plan of 
funding a major part of the estimated budget deficit of USD 
1.71 billion (Naira 232 billion) through a USD 809 million 
(Naira 110 billion) bond issue in the domestic capital 
market.  In addition to their Excess Crude Account, the 
legislators insisted that unknown revenues from privatization 
of GON parastatals and money recovered from Abacha-era 
theft/embezzlement be used instead of a bond issue.  Stolen 
funds that are recovered are to be put into a "Looted Funds 
Account." 
 
10. Most legislators are worried at the high and rising 
figures for the GON's domestic debt service, and several are 
also worried that bond financing of the GON deficit would 
prevent private business from raising funds in the domestic 
capital market.  In recent years GON bonds have sold at high 
yields of over 20 percent, although in 2003 they were 
reportedly under-subscribed.  The Presidency, however, 
continues to insist on issuing bonds in the domestic capital 
market to finance the budget deficit. 
ROBERTS