Budget delay: Market analysts differ on likely fallout on economy, businesses

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Financial accounting stock market graphs analysis

Matthew Otoijagha 

It is now an established fact that budget preparation, submission, consideration, approval and signing delays are predominant in Nigeria to the extent that the budget is often not available for implementation in the 1st quarter and a better part of the 2nd quarter over the past one and half decades.

From our research, the delays are said to be related to submission delays which average time lag between start of fiscal year and submission of draft budget by the executive to the legislature.

It has also been noted that businesses generally record poorer performance in Q1 and Q2 compared to Q3 and Q4. The 1st and 2nd quarters tallies with the period of the year during which the budget is mostly unapproved by the legislature or waiting for the president’s assent.

President Mohammadu Buhari only recently passed the 2019 national budget into law. In the face of the delays of annual budgets which has now become a reoccurring feature; Stocks-watch went out to feel pulse of market analysts on the likely implications of the late passage of the Budget on the economy and businesses this year.

Aruna Kebira, a stockbroker and market analyst in his submission said,  ‘‘When you actually look at the ceremony and the speech made by the president, he told the world that he would not have sign the budget, but kind of being forced to do so. I don’t think the investing community and the international community will be happy with that comment, as a president, he is supposed to have a say in whatever is being done in the country.

Be that as it may, I don’t think recent signing the budget into law will have positive implication on the economy. This is because the budget is being signed into in the month of June. It means that they have been spending since January, I always say it that as long as this market is tilted towards the foreign investors they have influence in the market. When they come into the market the moves and when they leave the market the market goes down.

What signing of the budget in June means to our foreign investors shows that we are playing and not serious. Half of the year is gone and government has been spending. As long as the average Nigerian is concerned, the have always signed the budget late, and it is no longer a new thing; and that why the market has been behaving the way it is going.

I have always said the market has a mind of its own, though it could be influenced from the outside or inside. This is the month of June which marks the end of the second quarter, especially when you are looking at the performance of companies, and in another one month, we will be seeing quarter two result. However, if there is good result in Q2, it definitely touches the second quarter result.

I, as an investor, I should look for equities that are cheap, because that is what the market has brought about. I will go for equities that have good fundamentals and take position in the market

Sanusi Dele, Camry Securities Ltd said, ‘‘Now that the budget has been passed into law, it is going to have a positive effect on the economy and also on the capital market. This is because all the projects are going to start working and their implementation will be full gear. The various projects will now get the go ahead.

There is what is called the timeline, the time between when the budget is signed and when implementation starts. Because of the delay of the budget, the market was as active as it should be, but now the market is going to experience an uptrend.

Though the budget is somewhat late, at the end of both third and fourth quarter, we will be seeing the impact of the budget on the market and the economy.

Solomon Kugbe of Marnot Securities said, ‘‘Naturally, signing of the budget will bring relief to the capital market and to various other sectors. This is because it will open the door to the implementation of projects, particularly government projects. Now, workers can be paid, people can now have some margin, and that means that some reprieve can come in for the capital market.

Some contractors who have been waiting for payment, they may want to invest some of those cash, and of course, when such monies find their way to the market, it will boost it and also help revive the economy.

That the late coming of the budget will not impact the market cannot be correct. The budget will run from June this year to December, 2018 there is still a lot of time for things to be done. Remember, that the national budget came out late last year, yet a lot of things were still achieved.

Though the budget signing has not provided any boost since its passage, but there could be gap between when an action takes place and its effects starts to manifest.

Paul Urum, Royal Guaranty and Trust Ltd, in his submission said, ‘‘For me, reactions in the market are usually base on rational expectations. It is when something not expected happens that the react positively or negatively. The budget passage is something that was expected and the reaction to it was not much.

The public expected that the budget was going to be signed, though it was delayed for too long. For the economy, it is positive, in that capital projects can begin and that will boost the economy. It will also mean that money will start flowing to the economy, which will translate to better balance sheet for companies, more circular flow and a better economy for everybody.

The delay was not a good thing; we expect the budget to have been released at least in the first quarter of the year.

If interest rates had changed unexpectedly, market reacted either positively or negatively. Investors would have priced the new changes into their assets price and it will be noticed immediately. We knew where the country was going; it is just that the budget was allowed to drag for too long.

 

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