What are the implications of the delayed budget?

On Friday 5th of May, Nigeria’s 2016 budget expired, meaning the country is now without a valid Federal budget.

This is the second year in a row that Nigeria’s budget is being delayed. What is different in this case however is the deafening silence, compared to last year when the issue was at least being discussed. The budget process is not a straightforward one as it usually entails several rounds of back and forth between the Executive and Legislature (both the Senate and House of Assembly). This usually takes several months so it is possible Nigeria may not have an approved budget till the third quarter of the year.

With the executive powers of the president once again passed to Prof. Osinbajo in an acting capacity following President Buhari’s latest trip to the United Kingdom, it is unclear if and when the the Legislature will pass the proposal which was presented in December, 2016. For a government which controls both the Executive and the Legislature, and which has touted its recently released Medium Term Expenditure Framework (2017 – 2019) as the silver bullet to securing Nigeria’s economic future, this delay is surprising.

Normally such delay should lead to a shutdown of government spending, as seen in the United States in 2013. However in Nigeria, successive governments have been known to ignore the rule of law especially where the same political party controls the Executive and both houses of the National Assembly. Even the main opposition party has been silent on the issue.

Regardless, we expect that there will be some implications on capital spending even as the government continues to implement its 2016 budget. Ideally, there should be no cash backing for such capital projects but we expect that the CBN will continue to borrow in the capital markets as if nothing has changed.

The above sends a signal that Nigeria is not a country that takes its own laws seriously. This could heighten the country’s political risk profile, and reduce investor confidence.

Finally, next year preparations will begin for the 2019 general elections and the 2018 budget should capture INEC’s proposed expenditure. Should the 2018 budget be delayed, the implications will be felt on election day.