3 December 2008
document
Lagos — Full text of President Umaru Musa Yar'Adua's Budget address to the National Assembly
PROTOCOL
It is a pleasure and an honour for me to present the 2009 Budget to the National Assembly today, as we move to reposition our economy to meet the challenges and take advantage of the opportunities that we are faced with at home and internationally.
The changing international oil market poses grave concerns for our fiscal outlook. The global financial crisis has led to slowing growth across the world's economies, resulting in a lower demand for commodities, especially oil. While speculative investment activities had helped to buoy oil prices in recent months, the reality of the global recession is beginning to be fully appreciated across the globe, and more poignantly in Nigeria by its adverse impact on the international price of oil.
The recent volatility of the oil price is apparent in the unprecedented decline of prices from record highs of about US$147/barrel in July this year to current prices of about US$50/barrel, and there is no guarantee that prices will not further decline despite OPEC's recent mitigating efforts. We therefore must adopt a prudent outlook that does not invest misplaced confidence in the expectation of unrealistically high prices.
Notwithstanding the global downturn, Nigeria 's economic growth remains on track, buoyed by the strong performance of the non-oil sector. Growth in the non-oil sector, particularly in agriculture, remains robust, at an estimated 9%. However, the oil sector's GDP contracted in 2008 by about 2.5% due to reduced production levels precipitated by the ongoing situation in the Niger Delta. Overall, real GDP growth for 2009 is estimated to be about 7.5% which compares favourably with the 6.6% recorded so far in 2008.
This outturn lays the foundation for sustainable double-digit growth over the medium-term horizon, as we increase investments in critical infrastructure, implement sectoral reforms, maintain macroeconomic stability and ensure lasting peace, security and development, not only in the Niger Delta, but across the nation, as a whole.
Year-on-year headline inflation has exceeded our single-digit projections and remains high at 14.7% in October 2008. This outcome is symptomatic of the rising global costs of food and energy which affect all economies world-wide. By October, food inflation had increased to 19.2%. However, core inflation for all items other than farm produce and energy commodities, remained in a single-digit at 7.9%. Our efforts to manage inflation will continue to build on the increasing coordination between monetary and fiscal policy, and our emphasis on fiscal discipline and prudence in macroeconomic management.
Our economy, as with open economies across the world, is not immune to the challenges in the global financial markets arising from the acute contraction of credit and liquidity in the international financial markets.
However, we have moved to protect the integrity of our nation's financial markets and system by introducing several measures to strengthen our financial sector and restore investor confidence.
Overall, our economic fundamentals are fairly strong, buttressed by the growth of the non-oil sector in the face of these challenges. This confidence has been duly reflected in our Local Currency Issuer Default Ratings (IDRs) which were upgraded by international rating agencies from BB- to BB in May this year. Our long-term foreign and local currency IDRs remain stable, endorsing our macroeconomic stability and strong external reserves position. Indeed, in November this year, an international investment bank, Merrill Lynch, rated Nigeria among the least vulnerable economies in the world based on a number of economic indicators. Our ranking, ahead of all other leading developed and emerging economies across the globe, is indicative of the stability and safety that our ongoing economic reforms have guaranteed.
It is against this cautiously optimistic economic backdrop that the 2009 Budget Proposal, which I hereby present, was prepared.
The 2009-2011 Medium-Term Sector Strategies and the 2009 Budget
The 2009 Budget preparation has been based on the outcomes of the 2009-2011 Medium-Term Sector Strategies which held in July 2008 with the active involvement of the Organised Private Sector and Civil Society, and in consultation with the relevant Committees of the National Assembly. Consultation with the National Assembly was continued in a series of interactive meetings between the Presidential Committee on the Budget and many of the Committees of both the Senate and the House of Representatives. The commitment and input of the Distinguished and Honourable Members of the National Assembly in this work is deeply appreciated and underscores the spirit of cooperation and consultation with which the Budget has been prepared.
The 2009 Budget preparation also drew upon the Medium-Term Fiscal Framework which was conveyed to the National Assembly in October. However, this framework has since been reviewed in light of recent economic developments. We have sought to be more efficient in the use of public resources by eliminating or rationalising areas of waste and focusing on the critical sectors that would propel the growth of our economy and help us realise the objectives of the Seven-Point Agenda. We are moving from a system where we spread our limited resources thinly across many projects that take several years to complete, to one where we concentrate and focus on fewer, highly prioritised projects, which we can bring to quick completion.
Review of the 2008 Budget
The 2008 Budget was based on projected oil production of 2.45million barrels per day, a benchmark oil price of US$59.00/barrel and an exchange rate of NGN117/US$. Based on these assumptions, I signed into law last April an Appropriation Bill of N2.748trillion, representing a 32% increase in Federal spending over the 2007 fiscal year.
This, however, was based on a prior understanding with the National Assembly that the level and composition of projected expenditure under the 2008 Budget would be subsequently reviewed. Consequently, I submitted a proposal for a Budget Amendment to the National Assembly in July, which, I am pleased to say, has now been passed by the National Assembly. I congratulate the Leadership, and the Distinguished and Honourable Members for this gesture, which exemplifies the spirit of cooperation and mutual respect between both arms of government in the service of our people. Some of the efficiency savings from this reduced appropriation are being applied to finance the 2008 Supplementary Budget, which is designed to provide for items such as critical expenditure in the power sector. Again, I am delighted to observe the speedy approval of the 2008 Supplementary Budget by the National Assembly.
The performance of the 2008 Budget has been mixed and indeed far from satisfactory. While releases of budgetary allocations to the MDAs have been on course, with 100% of the capital vote released by the middle of November, actual utilisation has not kept pace with the releases due to a number of factors which we are closely looking into.
On the revenue side, although international oil prices reached record high levels in the first half of 2008, overall revenue performance has been below expectation, due to domestic oil production disruptions and declining international energy prices, as the global economy responds to the transnational financial crisis.
The aggregate projection for Federation Account receipts in 2008 was N4.529trillion. Oil-related revenue was expected to amount to N3.606trillion or 80% of this sum while non-oil sources of revenue were to account for the balance of N923billion or 20%. In addition to volatility in international oil prices, actual crude oil production has been lower than projected, averaging just over 2million barrels/day, due to the situation in the Niger Delta. As a result, overall revenue receipts have been well below expectation.
On a positive note, non-oil revenues have performed better than anticipated, due largely to increased efficiency of collection of the various taxes. Indeed, the current oil price situation underscores the overdependence of the Federal Budget on oil related receipts.
Consequently, this Administration will continue to lay emphasis on diversifying our sources of revenue from oil to non-oil sources. In the 2009 fiscal year, more emphasis will be placed on increasing remittances from public corporations, parastatals and agencies. In this regard, we anticipate greater Independent Revenue of about N306billion from various sources. The Federal Inland Revenue and Nigerian Customs Services will be further empowered to meet their mandates and shall be expected to increase their efficiency in collection. Trade related revenues will increase, as the 48-hour cargo clearance reforms transform the efficiency of our ports.
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