Budget: Expert says inflationary pressures expected, but not catastrophic

A financial expert, Mr. Johnson Chukwu, says the N28.7 trillion national budget may not lead to the attainment of the projected 21.4 per cent inflation rate due to its expansionary nature.

Chukwu, who is the Founder/Managing Director, Cowry Asset Management Ltd., said this in an interview with the News Agency of Nigeria (NAN), on Wednesday in Lagos.

He spoke on how the 2024 budget, signed by President Bola Tinubu on Jan. 1, is expected to impact the inflation rate and economic growth in the year and beyond.

The National Assembly had on Dec. 30, passed the 2024 appropriation bill, increasing its size from N27.5 trillion proposed by Tinubu to N28. 7 trillion.

Tinubu also said the government also projected that inflation would moderate to 21.4 per cent in 2024, noting that the country is currently reviewing its tax and fiscal policies.

Currently, Nigeria has an inflation rate of 28.2 per cent and as of second quarter of 2023 had a public debt of N87.38 trillion, from N49.85 trillion in first quarter, according to the Nigerian Bureau of Statistics (NBS).

Chukwu said, “Although, the government is budgeting inflation rate of about 21.4 per cent in 2024, but I think the budget in itself is inflationary because it’s an expansionary budget.

“An expansionary budget is an inflationary budget, in the sense that you are having a deficit of about N9.1 trillion, which the government has proposed to fund from both the foreign and local borrowing.

“But if you consider the current global macroeconomic environment, particularly the performance of emerging or third world economies on their bond activities, you will realise that it may be difficult for the federal government to actually access long term offshore  or foreign currency funding

“So, we will be left with local currency funding.

“And considering also that the first nine month of last year, about four trillion Naira was deficit and all was borrowed locally, mostly from the Central Bank of Nigeria (CBN).”

According to him, this is why the federal government has come back to the CBN for a N7.3 trillion ways and means, an indication of a safe liquid that will be injected into the economy.

“So, if you have a budget, which is about N9 trillion on a N19 trillion revenue projection, which is going to be achieved, then you are clearly going to see more inflationary pressure,” he added

He, therefore, said that there might be some level of moderation in the inflation rate, which could be attributed to the base effect

“We will see some level of moderation in inflation rate because of the base effect, but I don’t think 21 per cent is realistic,’’ he said.

He warned about the possibility of excess liquidity in the economy.

Chukwu explained that if the government falls short of its revenue target, it had to borrow extensively to cover the budget deficit, and inject a significant amount of money into the economy.

“The scenario might contribute to inflationary pressures.

“If you don’t achieve your target revenue of almost N20 trillion and you have a budget expenditure of N28.8 trillion, then if you are likely to borrow that, then the impact will be excess liquidity in the economy,’’ he added.