Nigeria’s government is looking to spend its way out of an economic slump but analysts now doubt if the government can deliver on its promise.
When President Muhammadu Buhari presented a record budget of 6.1 trillion naira in December, the government targeted economic growth of 4.37 percent this year.
Africa’s largest economy will probably contract for the first time since 1991 this year as oil output slumped amid militant attacks on pipelines while inexcusable delays and downright failed policies have helped to worsen the health of Africa’s largest economy.
The government is planning 1.75 trillion naira ($5.6 billion) in capital spending for the year, more than four times the amount spent in 2015, according to information from the budget office and the state has spent a meager N248 billion so far.
“Given the budget delay, it’s quite impressive that they got things out of the door and have spent that much already. That expenditure is a good step forward and good news,” John Ashbourne, London-based economist at Capital Economics Ltd., said by phone. “Most importantly, however we expect capital expenditure of more than 1 trillion naira in 2016, so what they have spent so far is small in comparison to expectations and Nigeria’s needs.”
Even if the government were on target, “the main effect of the capital expenditure will be felt in several years to come,” says Oyin Anubi, a London-based economist at Bank of America Merrill Lynch.
“There could be a small boost to economic activity in terms of creating demand and jobs but this does not offset other challenges related to oil revenues and dollar shortages.”
The Presidency said on Aug. 1. Nigeria intends to borrow abroad to help plug its 2.2 trillion naira budget gap and make more funds available for capital investments, Finance Minister Kemi Adeosun told lawmakers last month.
Adeosun and Central Bank Governor Godwin Emefiele have both met with potential investors abroad as the nation plans to sell as much as $1 billion worth of Eurobonds this quarter.
That’s in addition to plans to borrow $3 billion from the World Bank and African Development Bank.
Higher borrowing costs would signal a desire to gradually achieve positive real interest rates and help Nigeria tap international capital markets, Emefiele said last month.
