US embassy cable - 03ABUJA594

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. 
 
 
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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. 
 
 
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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. 
 
 
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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