Plan for an acceleration in public spending ahead of the election, after which budget constraints will emerge
Companies selling to the public sector can expect an improvement in opportunities ahead of the August 2022 election, followed by a marked slowdown in demand that will last into 2023. MNCs should review their product portfolios to ensure they align with the government’s spending priority areas and incentivize their local partners to track public spending announcements. In addition, consider investing in local partners’ business development capabilities, for example, by helping them position offerings to align with the government’s policy goals.
Overview
On April 7, Finance Minister Ukur Yatani presented the government’s 2022/23 budget to parliament, revealing a 10.5% YOY nominal increase in recurrent spending and a 14% YOY nominal increase in capital expenditure. Given the forecast annual inflation rate of 9% YOY in 2022 and 6% YOY in 2023, this represents an increase in real terms. However, the boost to funding allocations is unevenly spread between functions. The largest nominal increases will be allocated to national security (+25% YOY), healthcare (+21.2% YOY), public administration (+10.7% YOY), and energy and infrastructure (+9.6% YOY). However, several functions will receive below-inflation increases, which is tantamount to real-terms cut in funding. These include education (+7.9% YOY), governance and law and order (+6.7% YOY), and public administration (+4.3% YOY). Meanwhile, agriculture and rural and urban development faces a 15% YOY nominal cut in spending.
Our View
A surge in planned spending through 2023 reflects pre-election largesse aimed at winning favor with the electorate ahead of the August 2022 election, which is expected to be closely fought. However, the government will fail to fulfill its spending and investment agenda as currently planned owing to chronic fiscal pressures; bleaker prospects for economic growth will undermine growth in tax revenues, rising domestic and global interest rates will raise the cost of servicing debt this year, and beleaguered state-owned enterprises will require further bailouts as the fiscal year progresses. In practice, MNCs can expect spending and investment plans will progress apace until the election, after which funding constraints will begin to emerge, resulting in most government departments slashing spending before the end of the 2022/23 fiscal year.
At FrontierView, our mission is to help our clients grow and win in their most important markets. We are excited to share that FiscalNote, a leading technology provider of global policy and market intelligence has acquired FrontierView. We will continue to cover issues and topics driving growth in your business, while fully leveraging FiscalNote’s portfolio within the global risk, ESG, and geopolitical advisory product suite.
Subscribe to our weekly newsletter The Lens published by our Global Economics and Scenarios team which highlights high-impact developments and trends for business professionals. For full access to our offerings, start your free trial today and download our complimentary mobile app, available on iOS and Android.