2017 budget: How capital market can contribute to economic growth

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by Chinenye Anuforo

The 2017 Federal Government budget was presented to the joint session of the National Assembly by President Muhammadu Buhari on December 15, 2016 against the backdrop of mixed expectations among the citizenry.
The 2017 budget dubbed ‘Budget of Recovery and Growth’ shot up 20.4 per cent higher than the 2016 budget of N6.07trillion with a total provision of N7.29 trillion.
The Federal government stated that the budget is fashioned to resuscitate the economy from its dying state and end the recession in a matter of months.
The capital budget components of most of the previous budgets were poorly implemented and did not yield the expected outcomes and impact. In 2016, the capital budget could not also be implemented meaningfully to yield significant impact because of several factors which are still very much at play.
Illuminating ways in which the capital market could complement government efforts in the budget implementation, the Chairman, Association of Stockbroking Houses of Nigeria (ASHON), Chief Onyenwechukwu Patrick Ezeagu explained that the market can positively impact on the 2017 budget of recovery if the Federal Government remains committed to the financing of infrastructured deficit through the capital market. He said, “One of the major challenges businesses are facing is poor infrastructure which consumes a large chunk of their revenues. The Federal Government should ensure that the capital expenditure of the 2017 budget is dedicated to improving infrastructure in order to enhance the ease of doing business in the country for businesses to become productive and move towards economic recovery. In addition, a time has come when the Federal Government should involve the capital market regulators and operators in the build -up to budgetary processes and procedures in view of the pivotal role of the market to the  growth and development of the economy. The market is a reservoir of cheap and long term funds which is required for long term development of any nation. The capital market serves as a buffer zone for the government to finance budget deficit and there is a correlation between the development of the economy and its capital market.”
Speaking recently at the seminar titled: “The 2017 Budget of Growth and Recovery: Relevance, Implications and Perspectives of the Nigerian Capital Market”, the Director General of the Securities and Exchange Commission (SEC), Mounir Gwarzo, also pointed out that large budget deficits can affect stock prices and undermine investor confidence adding that a vibrant capital market would complement government efforts in achieving its budget plan.  At the same seminar, the guest speaker and Head, Economic Research and Policy Management Division, SEC, Dr. Afolabi Olowookere, said the 2017 budget would affect the market significantly.
According to him, the market could provide a platform for the sale of government shares during privatisation, noting that proceeds realised from privatisation exercise could be used for budget financing.
Olowookere added that the capital market engenders transparency among listed firms thereby easing source of tax collection.
For Mr. Johnson Chukwu, Chief Executive Officer of Cowry Asset Management Limited and Financial analyst, thecapital market is critical for government to meet its funding needs in 2017 budget. “The government needs to borrow about N1.25 trillion from local market and the capital market will be the market that will provide that funding.  Without such borrowing, it should be recognize that government budget for capital expenditure stands at N2.35 trillion whereas the old one stood at 2.24 trillion. So, if it doesn’t upgrade about N1 trillion to be borrowed externally, then, it now means that government was unable to achieve its local borrowing plan and it wouldn’t be able to implement up to 50 per cent of its capital budget plan. So, in essence, the capital market is key, if the government wants to achieve its budget plan”, Chukwu explained.
The President, Constance Shareholders Association of Nigeria, Shehu Mallam Mikail, said the capital market can only contribute meaningfully to the growth and economic recovery process which the 2017 budget seeks to promote if there are  right policies that will drive investment. He argued that, “In a situation where government policies are not favourable to investments, investors would not be willing to invest. It is only when there is a boost in business/investment in the capital market, that the impact would be felt in the economy.”
He suggested that government must seek rapour with capital market stakeholders in order to engage them in discussion that can bring out ideas that would help the economy.

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