Monetary Policy

MPC Mandate of the CBN | Fiscal Policy | Committees | Calendar of Meetings | Educational | FAQ's | Policy Decisions | Policy Communiques | Intl. Economic Cooperations | Monetary Policy Review | Policy Measures | Understanding Monetary Policy Series | Monetary, Credit, Foreign Trade and Exchange policy Guidelines | Monetary Policy Committee Reforms | AfCFTA

The Conduct of Fiscal Policy

Fiscal Policy 2006

Fiscal Policy 2006
The 2006 budget was a continuation of the NEEDS reform agenda which started in 2004.The fiscal policy thrust for the year was anchored on giving a boost to infrastructural development in order to empower the private sector to create wealth and protect the poor in Nigeria. Measures were focused on diversifying and strengthening the economy in order to improve the well being of Nigerians both now and in the future. This would be achieved given that the budget was crafted in the context of a Medium Term Expenditure Framework that is forward looking.

The projected total revenue was N3.7 trillion made up of N2.8 trillion from crude oil sales, oil taxes and income from gas (76.1%), N230 billion from Companies Income Tax (6.3%), N197 billion from Customs and Excise Duties (5.4%); and N450 billion from Value Added Tax (12.2%). The larger receipts from Value Added Tax were based on an increase in the rate. The projected revenue from the Federation Account was N1.57 trillion while the estimated federal disposable revenue was N1.52 trillion as a result of provisions made for certain strategic projects and government agencies.

The projected aggregate expenditure was N1.88trillion, comprising Statutory Transfers (N86billion), Domestic and External Debt Service (N290billion), and Spending of Ministries and Agencies (N1.5trillion). A total amount of N290billion was budgeted for domestic and external debt service. In all, the projected fiscal deficit was N357 billion, representing 2.4 percent of GDP. Financing of the deficit was expected from sale of government properties, privatization proceeds and domestic borrowing.

The links below detail the conduct of monetary policy in the following categories.

• Monetary policy Measures
• Instrument of Monetary Policy
• Monetary Policy Targets
• Monetary Policy Programme
• Appraisal of Monetary Policy

Impact of Increase in International Oil Prices

The impact of crude oil price increases could be significant. A recent analysis estimates that a supply-induced doubling of prices would boost inflation in emerging Asia by as much as 1.4 percentage points above baseline. The inflation effects would be larger if oil importers had difficulties financing the resulting current account deficits, and also if subsidies that had hitherto limited energy prices were assumed to be further reduced or eliminated. For Nigeria, increase in crude oil prices means more foreign exchange earnings which would likely put inflationary pressure in the Domestic economy. In order to ameliorate this problem, there is need for effective coordination of monetary and fiscal policies.

Government Fiscal Operations For Year 2006

Federation Account Operations
Total federally collected revenue increased by 7.5 per cent to N5,965.1 billion in 2006. This amount is 12.7 per cent lower than the budgeted estimate of N6,836.0 billion due to slow down in crude oil production below the budgeted level, resulting from Youth restiveness in the Niger Delta. Revenue from non-oil sources fell by 13.7 per cent to N677.5 billion in 2006. The fall in tax revenue could be attributed to the implementation of CET under the ECOWAS protocol, the granting of duty waiver and tax holiday for foreign investors.

Total Expenditure of the Federal Government
The Aggregate expenditure increased by 6.4 per cent to N1,938.0 billion in 2006. Non debt expenditure rose by 18.2 per cent above the level in 2005 and was 4.9 per cent above the N1,610.5 billion budget estimate for 2006. Total debt service payments amounted to N249.3 billion, representing 12.9 per cent of the total expenditure.


Recurrent Expenditure
Recurrent expenditure rose by 5.4 per cent to N1,290.2 over the level in 2005 and accounted for 66.6 per cent of the total expenditure. The purchases of goods and services amounted to NN1,040.9 or 80.7 per cent of the total, while external and domestic debt service accounted for the balance.

Capital Expenditure
Capital expenditure increased by 6.3 per cent to N552.4 billion in 2006. As a proportion of Federal Government Revenue, capital expenditure was 30.1 per cent, exceeding the minimum of 20 per cent target under the WAMZ secondary criteria.

Overall Fiscal Balance and financing
The current account surplus increased by 25.0 per cent to N546.5 billion, while the primary balance recorded a surplus of N795.8 billion as against the N831.0 billion in 2005.

State Government Finances
The provisional data showed a deficit of N43.0 billion, representing a decline of 27.0 per cent when compared with N58.9 billion in 2005. The lower deficit was due to increased statutory allocations from the Federation and VAT pool account.

State Governments’ Revenue
The total revenue rose b 8.7 per cent to N1,543.8 billion or 8.4 per cent of GDP. The allocation from the Federation Account including the 13.0 per cent derivation was N1,016.1 billion or 65.8 per cent, the VAT pool Account (N110.6 billion or 7.2 per cent ), Internally generated Revenue (125.2 billion or 8.1 per cent ), the Stabilization Account (N11.9 billion or 0.8 per cent).


States Government Expenditure
The consolidated expenditure increased by 7.3 per cent to N1,586.8 billion. The recurrent expenditure of N894.3 was 13.3 per cent higher than the level recorded in the preceding year. Capital expenditure of N584.0 was 13.5 per cent higher than the level recorded in 2005.

Local Governments’ Finances
The provisional data revealed that Local Governments recorded a surplus of N8.4 billion, compared with N9.2 billion in 2005. The surplus was due to increased revenue accruing to the Local Government in 2006.

Local Government Revenue
Total revenue increased by 12.9 per cent from N597.2 billion or 4.0 per cent of GDP in 2005 to N674.3 billion or 3.6 per cent of GDP. The internally generated revenue of N23.2 billion accounted for only 3.4 per cent. The low contribution of the internally generated revenue reflected high dependence on funds from the Federation Account.

Local Government Expenditure
The consolidated expenditure of the Local Government Councils in 2006 rose by 13.2 per cent to N665.8 billion. Further break down revealed recurrent expenditure of N398.2 billion higher than the level recorded in the preceding year by 6.3 per cent and accounted for 59.8 per cent of the total. While capital expenditure of N267.7 billion was higher than the level recorded in 2005 by 25.4 per cent and represented 40.2 per cent of the total.