Matthew Otoijagha
Timeliness of the passage of the budget has always been a big issue in the last couple of years in Nigeria. The present 2019 proposed budget was laid before the National Assembly on 19th December 2018. The nation’s Fiscal Responsibility Act requires the completion of the Fiscal Strategy Paper on the budget by December each year and this has hardly been adhered to.
Following the unfortunate development, economic experts have harped on the need to adhere to the Fiscal Responsibility Act and present the fiscal strategy paper and budget on or before December every year to ensure passage before the end of the year, so as to return to the January- December budget cycle, but this is hardly the case.
Nevertheless, the 2019 budget was finally approved last week by the National Assembly and now await the signature of the president. Consequently, Stockswatch went out to gauge the impression of economic stakeholders on the rather late release of the budget and its likely impact on economy and the capital market
Paul Uzum: a Stockbroker and market Analyst in his opinion opined that the economy needed the budget as impetus to boost productivity, employment, and infrastructure development. According to him, ‘‘in my view, the persistent late release of budget is not good for the economy. The budget is a plan that state how the government intend to spend the revenue that it has for a particular fiscal year.
When the national budget of any country which authorizes spending is delayed, the implication is that there will be a lull in cash spending in the economy, which inevitably would lead to lower GDP growth, lower secular flow of cash within the economic system and that affect the plans of many companies, particularly those that are listed.
So, it is not really going to be good for the economy. The government should find a way to ensure that the budget comes out on time. Unlike what happens in other countries, budget delay in Nigeria is not a good thing.
I think, this account for our low level of economic growth. When government has plans, it is a well-known fact that it cannot spend without budgetary approval. This really slows down the pace of development, especially where you have companies handling government contracts, it will certainly not auger well for such companies. This also means payments for contracts will be delayed.
Capital markets thrives on what we call rational expectation. The fact that in recent years the national budget hardly comes out on time; players in the capital market already price it into prices of stocks.
As to how the budget will affect the market, I think what really affect market prices are crude oil price, which also guarantees government’s ability to implement the budget. So when they see that crude oil is coming up, that gives confidence that the budget could be implemented and that the economy will get strong and the prospect for economic growth this year will be assured.
Since budget delay has become a perennial thing, for investors, they will now factor that into their business projections. What really matters to the business community is the prices of oil, economic policies that will drive it.
Arunah Kebira a stockbroker and Analyst speaking in the same breath said: ‘‘The release of the budget is late. It was released in April which is four months behind schedule. The ideal time is that the budget is release before now, that is by January of every year.
The National Assembly and the presidency should ensure the budget is released on time. The budget is supposed to be passed in the month of December, then in January of the preceding New Year, the budget is then signed into law.
I believe that the highest spender in an economy is the government with its multiplier effect of government expenditure. As far as the budget is not done for a year, the government can only do extra-budgetary expenses, which will not be as much as when the budget is actually released.
But now that the budget is released, there will be liquidity in the market as government expenditure will create a lot of opportunity in the market. In macro-economics, it is said that aggregate savings is equal to aggregate investment. If you don’t earn money, you cannot save. It even depends on how much you are earning.
I have the belief that the release of the budget will ensure that there is liquidity and when there is liquidity, there will be employment, and that liquidity will trickle down into the market. I think that might be the stimulus that market is actually waiting for.
Finally, the impact of the budget on the economy will largely depend on well it has been implement. This is because it is the implementation of any budget that matters. You can have a bogus budget, but at the end of the day, when you sit down and see that you supposed income is not as much as it is budgeted, definitely it is going to have negative effect.
But if the budget is well implemented and the relevant government agencies are up and doing, then the budget will have positive effect on both the economy and the capital market.
Otumba Dele Ajayi-Smith, an Investor and former Council Member, LCCI, in his response to the economic impact of the budget said: ‘‘I expect the full and proper implementation of the budget to trigger increased tempo in economic activities including shoring up investors’ sentiments in the stock market.
‘‘I hope the executive arm does not have issues with the slight upward adjustment made by the legislatives to the size of the budget which were mainly in respect of matters that manifested only after the proposals had been submitted such as the need to address the fallout of the carnage in Zamfara state.
“Stakeholders both local and foreign are interested in the budget and try to analyze how it affects them. Investors also sit down and analyze the budget and that is why the capital market should also be concerned with the impact of the budget and how the market can aid its implementation.
‘‘Despite the late approval of the budget, I believe its swift implementation would have a positive impact on companies’ earnings, as well as consumer spending. The economy needs the budget as impetus to boost productivity, employment, and infrastructure development. It is hoped that as this administration starts its second term and the ninth Assembly resumes, we would return to a January to December budget cycle.
‘‘The January to December budget cycle would ensure stability, reduce uncertainty and boost investors’ confidence in budget implementation and performance.