Nigerian President Goodluck Jonathan is pushing to curb spending on wages and scrap fuel subsidies next year to help narrow the budget deficit in Africa’s largest oil producer.
Jonathan, who will give his budget speech in Parliament in Abuja at 12 p.m., may raise spending by 7 percent to 4.8 trillion naira ($29.6 billion) in 2012, according to a medium-term fiscal plan published by the Budget Office on Oct. 5. The deficit is set to narrow to 2.7 percent of gross domestic product next year from 3.6 percent in 2011.
Nigeria spends more than 70 percent of its budget on recurrent expenditure, such as salaries, diverting funds from building power plants, houses and roads that’s needed to sustain growth in sub-Saharan Africa’s second-largest economy. Jonathan wants to scrap fuel subsidies to save the government 1.2 trillion naira a year, a move opposed by lawmakers and labor unions because it threatens to boost costs in a nation of more than 160 million people.
“The country has been living beyond its means for some time, with little to show for it,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in an e-mail. “An awful lot has ‘gone’ in the way of recurrent spending recently.”
Jonathan’s government plans to raise capital spending to 27.5 percent of total expenditure in 2012 from 25.6 percent this year, according to the medium-term plan. Recurrent spending is set to decline 1.9 percentage points to 72.5 percent.
The spending cuts will be difficult because it requires a reduction in wages, Finance Minister Ngozi Okonjo-Iweala said on Oct. 20. The government doubled minimum wages for state workers in August.
Government spending, which soared in 2010 as the government prepared to hold elections in April, fell to 4.5 trillion naira in 2011 from 5.2 trillion naira last year. The medium-term plan estimates expenditure will grow 2.5 percent in 2013 and 2.2 percent in the year after that.
The budget is based on an oil price of $70 a barrel, with the government required to save proceeds if the international oil price exceeds that. Oil makes up about 80 percent of state revenue and more than 95 percent of export income.
Crude oil has jumped 10 percent in New York since the beginning of September and was trading as high as $98.05 a barrel today.
Jonathan is facing opposition in scrapping fuel subsidies. Parliament’s lower house rejected the plan on Dec. 1, saying it was “premature” to be included in the budget program for 2012. The Senate can still approve the proposals.
“In the end you’ve got to make unpopular decisions as the government about these things,” David Cowan, sub-Saharan Africa economist at Citigroup Inc. in London, said in a phone interview. “It’s better to make it early in the life of an elected government and get it over and done with.”