The euphoria that greeted the speedy passage of the 2020 budget by the National Assembly may have gone to the wind with the global threat of Coronavirus.
In a radical departure from the previous experience, the lawmakers had expeditiously worked on and approved the appropriation bill presented before them by President Muhammadu Buhari before the close of last year. This was with a view to achieving a return to the old tradition of running the budget from January to December for higher implementation performance.
When the president eventually assented to the bill, there was high hope that improved budget performance implementation would give a boost to the economy.
Suddenly, however, the dreaded Coronavirus foisted fresh fear on the world at large and changed the dynamics of the game. Nigeria is not in any way immune from the global threat. Unlike other developed economies, the country is more vulnerable to the vagaries of international market price of oil as a major source of foreign exchange earner.
Already, the International Monetary Fund (IMF), in its recent review of the 2020 economic outlook, has predicated a lower growth rate of two per cent as against the projected growth of 2.5 per cent. The bleak forecast, contained in its Article IV Consultation to Nigeria, followed the dwindling oil price in the international market linked to the outbreak of Coronavirus in China. The IMF team of economists that visited Nigeria to assess the economic and financial policies described the outlook as very challenging.
The 2020 budget was benchmarked on an oil price assumption of $57 per barrel and oil production of 2.18 barrel per day. With the outbreak of Coronavirus, the price has gone down to $55 per barrel, amounting to 22.5 per cent lower than the projected revenue for the fiscal year. In the response to the new challenge, the Federal Government on Thursday announced plan to review the budget as revenue shrinks further due to the negative impact of the COVID-19. While announcing the decision, the Minister of Finance and Budget Planning, Zainab Ahmed, said: “We will do a mid-term review and if the impact is so much, we will need to do an adjustment in the budget, working together with the National Assembly.
“I am glad to inform you that our oil production as of today is two million barrels per day and at times slightly higher like 2.1 million. That in itself will be a cushioning effect for us in the current oil price.”
This disclosure is coming on the heels of agreement among OPEC ministers to cut oil production to stabilize the price in the international market. But some finance experts, preempting the OPEC measure, say cutting oil supply may not be easy as they thought.
Prof Segun Ajibola, the President of Nigeria Institute of Banker, in a telephone interview with Sunday Sun, says cutting oil production is like boxing the air. His words: “OPEC cannot just come together to issue a pronouncement. This is not a time to say let us cut supply to raise price. We all pray this thing doesn’t last long.
“What is happening now is strange. It is a natural disaster. So, coming together to plan for something that you cannot control will be difficult. What you can do is to see how far you can manage the situation. It is like struggling against the tide or boxing the air. It is a risk foisted on us by nature; it is difficult to plan against. It’s a survival strategy.”
He predicted a tough economy challenge for the country. “If factories and businesses are closing in China, the major importer of Nigerian oil, the need for oil will go down and demand will go down. It’s a question of demand and supply. If the price remains constant and the demand is going down, price will begin to nosedive and fall. And you know the implication of oil on our budget. Money from oil accounts for about 60 per cent of our revenue and 90 per cent of our foreign exchange. That will put more pressure on the budget that is already a deficit budget. If that happens, some of the proposals will face some challenges of funding unless government can look for alternative source to replace falling oil revenue. There is no way government can mitigate the effect of this on the economy unless we go aborrowing. We may need to borrow more than what we envisaged in the budget, which means the deficit in the budget will be much higher than what was originally proposed.”
On the global impact, he added: “When the global economy is under this kind of pressure, it normally leads to recession. We pray it doesn’t last long. If the economies suffer, production ceases, and GDP nosedives, then the impact on the global economy is obvious.”
Also sharing the same view, Martin Onovo, a petroleum expert, argued: “It is not that easy to react to demand. If your demand falls, you can constrain supply to manage price, which is what OPEC has always done and which is what they are supposed to do. But they can only do that if the members agree. And now that Nigeria’s economy is in dire straits, there will be resistance to it.
He also forecast a bleak future for the global economy, saying, “there is the possibility of another global economic recession. If the threat of Coronavirus persists, it will surely lead to recession.”
While expressing reservation for the success of budget implementation, Onovo blamed the government for its lack of vision to plan for the future. He said: “Definitely, it will affect the budget. If your revenue is falling, you budget implementation will be constrained. We don’t how long the Coronavirus will stay, but from what the World Health Organisation is saying, it is not disappearing now. There are some things we may not be able to predict with exactitude with respect to timing. Eventually, science will find a solution to Coronavirus. Corona has resulted to lockdown; it has resulted to closure of schools. From a general point of view, activity level is down. If demand is down, then price will fall. And because we are incompetent as a government, this could have been prevented. If this government had from the beginning had a more conservative and less prodigal disposition, this could have been mitigated. If we had a more conservative estimate, which is what we have been preaching since 2015, we would have been able to achieve some surplus any time the prices go higher. But we have been having repeated over estimated revenue in the last four years. That is incompetence.”
In his own submission, Senator Gbenga Obadara posited that the unbudgeted expenses government would incur in the cause of fighting the dreaded diseases would take its negative toll on the economy.
“That is the fundamental problem of unpredictability of life. There are times when certain things cannot be predicted. The National Assembly did a fantastic work for the first time by passing the budget before January 1. But now, there is Coronavirus saga worldwide, which has crashed the price of oil below the benchmark. With the situation of things, I can’t see the oil price going up again in the next two or three months. The disease control department of the World Health Organisation is trying its best, but it is spreading to other continents of the world. We can only pray to God to give us the solution to contain it.
“Unfortunately, where we have epidemic like this, government can only try its best to contain it, but before everybody gets back to life, it will take some time. It affects all sectors of the economy. Don’t forget that it requires a lot of resources to fight this virus. So, a lot of money that would have been used to develop the economy is being deployed to contain the virus. It will affect both the domestic and global economy,” he said.
Since its inception in 2015, the Buhari administration has been mouthing diversification of the economy. But as the IMF noted, the economy is still much dependent on oil and, therefore, vulnerable to external shocks whenever oil prices plummet or driven by unforeseen circumstances such as the current Coronavirus outbreak.
According to the finance institution, the pace of economic recovery remains abysmally slow, as declining real incomes and weak investment continue to weigh on economic activity, while “external vulnerabilities remain on the increase, reflecting a higher account deficit and declining reserves that remain highly vulnerable to capital flow reversal.”
In order to contain its vulnerabilities, the IMF advised the Federal Government to initiate major policy adjustments necessary to build resilience and unlock growth potential. It also warned the government to refrain from extra-budgetary spending through the resort to overdraft or intervention by the Central Bank of Nigeria (CBN).
There is a general consensus on the need for government to focus more on non-oil revenue as a way of overcoming the current financial constraints.