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Monday, April 15, 2024

Senate warns against supplementary budget amid currency depreciation

Calls for Prudent Fiscal Management Amid Naira Depreciation and Exchange Rate Uncertainty

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The Nigerian Senate has cautioned the executive against expanding the budget size through a supplementary budget, amidst concerns over the recent depreciation of the naira. Instead, lawmakers urge the government to utilize excess savings generated from the currency’s decline to address budget deficits.

This advisory follows the backdrop of the naira’s depreciation against the United States dollar, plummeting from N900/$ to over 1,500/$, triggered by measures by the Central Bank of Nigeria to align the parallel and official market exchange rates.

In December, the National Assembly adjusted the 2024 budget benchmark exchange rate from N750/dollar, as proposed by President Bola Tinubu, to N800/dollar. This revision was prompted by market realities, with the exchange rate averaging between N1200 and N1300 in the black market and N950 and N1000 in the Central Bank of Nigeria.

However, in light of the recent sharp decline in the naira’s value, the Senate advises against expanding the budget size, fearing exacerbation of the country’s already high inflation rate. Instead, lawmakers advocate for utilizing excess savings to reduce the need for borrowing to fund budget deficits.

Chairman of the Senate Committee on Banking, Insurance, and Other Financial Institutions, Tokunbo Abiru, emphasizes the importance of prudence in fiscal management, suggesting that gains from the budget should be channeled towards mitigating inflationary pressures and reducing deficit financing.

Deputy Chairman of the Senate Committee on Appropriation, Senator Ali Ndume, highlights the budget’s surplus resulting from the naira’s depreciation against the dollar. He underscores the need to leverage this surplus to bolster fiscal stability and minimize reliance on external borrowing.

Despite the currency’s volatility, lawmakers caution against premature judgments on the budget’s viability, stressing the importance of assessing the average exchange rate rather than spot rates. They call for patience in evaluating the budget’s performance and potential revisions based on stabilized exchange rates.

Economists weigh in on the implications of the currency devaluation, noting its mixed impact on government revenue and expenditure. While the devaluation boosts revenue when converted to naira, it also inflates the cost of imports and capital expenditure, necessitating prudence in budget implementation.

Experts recommend measures to address foreign exchange challenges, including diversification of revenue sources and policy adjustments to mitigate the adverse effects of currency volatility on the economy. They stress the importance of prudent fiscal management to navigate uncertainties and sustain economic stability amidst currency fluctuations.

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