Fiscal Prudence: The FG "appears" to be spending less.

At its last meeting on Monday, April 11th 2011, the Federal Accounts Allocation Committee (FAAC) announced the disbursement of N425 billion to the three tiers of government for the month of March, a 2.7% increase from its disbursement in February. The committee further noted that due to recent maintenance work on platforms at the Qua-Iboe, Bonny and Amenam terminals, and pipeline sabotage at Brass terminal and on the Trans-Niger pipeline, total monthly revenue declined 14.8% to N615 billion in March. In spite of the production setbacks, Nigeria's Excess Crude Account (ECA) rose to US$6.9 billion on the back of higher crude prices. 

While the depletion in the ECA and higher cost of borrowing in H2’10 combined to explain the decline in government expenditure, its reluctance to increase expenditure, in the face of significant ECA accruals in Q1’11, suggests renewed fiscal prudence . My analysis reveals that on an inflation adjusted basis, the FAAC allocation for Q1’11 is 7.1% (N80.2 billion) above allocation in Q1’09 but 24.4% (N294 billion) below allocation in Q1’10. This is also in view of other apparent indications of fiscal discipline, especially with regard to a significant drop in net government borrowing and the attempt to keep the executives 2011 budget proposal (N4.1 trillion) in line with the medium term expenditure framework.

While it is premature to view the current fiscal stance as a structural shift towards longer term restraint, think it is a step in the right direction, especially in the context of broader macro trends and other policy initiatives.  Of these policy initiatives, keeping inflation under control is an obvious benefit of fiscal moderation.  Notably, at its last Monetary Policy Committee (MPC) meeting in March, the MPC cited its desire to counter expansionary fiscal spending as one of the primary reasons for its aggressive upward adjustment of the Monetary Policy Rate (MPR). I believe the improvement in fiscal discipline could combine with softening global commodity prices, currency stability and hawkish monetary policy to moderate inflation in the short term. 

Mandela Toyo