The implementation success of Nigeria’s 2020 budget appears to be hanging in the balance over the continuous free fall of crude oil prices occasioned by the Coronavirus pandemic.
Indeed, the worrisome trend of oil prices got to its peak last week, when the United States West Texas Intermediate (WTI) crude oil grade traded at $0. However, the development was not a threat for Nigeria as the country’s crude grade is benchmarked against Brent.
But the Brent Crude is currently trading below the country’s reversed benchmark of $30 and may take a turn for the worse as most of the country’s biggest customers for crude oil in Asia and Europe have virtually shut down production activities due to the Coronavirus spread.
The development has sent shivers down the spines of the managers of the economy as it had to hurriedly revise the 2020 budget estimates in order to be in tune with current oil market prices.
The Federal Government as part of measures to cushion the effect of low oil prices which accounts for over 70 per cent of the country’s revenue slashed its oil price benchmark from $57 per barrel to $30 per barrel while the oil production volume was reduced from 2.18 million barrels to 1.70 million barrels.
As part of the cost saving measures, the Federal Government also cut down the 2020 budget by over N320 billion and proposed a new budget of N10.27 trillion against the N10.59 trillion passed by the National Assembly.
The revenue projection for the 2020 budget was also reduced by N3.3 trillion (about 39 per cent) from the initially approved amount of N8.41 trillion to N5.08 trillion.
The exchange rate was, however, increased from N305 to N360 to a dollar. This is based on the devaluation of the naira by the Central Bank of Nigeria.
Based on the new proposed budget, statutory transfers (a category into which the National Assembly budget falls), were cut by N152.67 billion from N560.47 billion to N407.8 billion.
Capital expenditure was reduced by N155 billion from N2.78 trillion to N2.62 trillion while recurrent expenditure was reduced by N25 billion from N4.49 billion to N4.46 billion.
The fiscal deficit increased from N2.2 trillion to N5.18 trillion – which is not unrelated to the drop in revenue.
According to the proposal, the fiscal deficit is expected to be financed through fresh borrowing of N4.43 trillion as against the initial borrowing plan of N1.59 trillion.
The budget further shows that oil revenue suffered the highest reduction of N2.38 trillion from the initial approved amount of N2.63 trillion to N254.25 billion.
Dividend from the NLNG was reduced from N124.26 billion to N80.37 billion while non-oil revenue declined from N1.8 trillion to N1.53 trillion.
In the same vein, revenue projection from signature bonus was revised downward from N939.3 billion to N568.68 billion, while revenue from stamp duty was reduced from N463.94 billion to N200 billion.
Commenting on the development, a former Minister of Finance, Mrs.Ngozi Okonjo-Iweala, said that the continuous drop in oil prices portends grave danger for the economy, adding that the country must begin to take steps to diversify it sources of revenue if it was to make progress towards the implementation of the 2020 budget.
On its part, the Nigerian National Petroleum Corporation (NNPC) said that Nigeria has not stopped producing crude oil, but a persistent crash in oil prices may lead to a halt in production.
The Group General Manager, Group Public Affairs Department, NNPC, Kennie Obateru, maintained that oil production had not stopped.
He said: “If the situation persists, it is something that is bound to happen definitely. We can’t keep producing if there is no market to sell to. And it is not something that is peculiar to Nigeria. It is a global thing.
“However, it has not happened. For as much as I know and up till this morning, nothing of such has happened.”
Obateru called for optimism among Nigerians, stressing that before any halt in oil production, stakeholders would have to meet to decide on the best way forward.
He said: “We should be positive and hope that things improve. But again, if the situation persists, definitely I think it will come to that.”
Nigeria had last month, before releasing its May loading programme cut the official selling prices for its crude oil to record lows to clear a glut of unsold April-loading cargoes.
The country has had to grapple with an unprecedented excess of oil triggered by the Coronavirus outbreak and a price war between Saudi Arabia and Russia for market share.
The Nigerian National Petroleum Corporation cut its April official selling prices for Bonny Light and Qua Iboe by $5 per barrel to dated Brent minus $3.29 and minus $3.10 per barrel, respectively.
Brent crude, the international benchmark, has fallen by over 60 per cent since the start of this year.
The Group Managing Director of NNPC, Mallam Mele Kyari, said recently that the country was already struggling to find buyers for its crude oil, saying over 50 cargoes were yet to be sold.
The unsold cargoes represent more than 70 per cent of the country’s total oil exports and put the country in a very difficult spot, according to S&P Global Platts.
Kyari said Nigeria’s crude cargoes had been stranded due to the higher selling price compared with its fellow OPEC members such as Saudi Arabia and Iraq, which could afford to offer discounts of around $5 to $8 per barrel to buyers.
In his reaction, Managing Director of Cowry Assets Limited, Mr. John Chukwu, said that the IMF projection that the country may be heading for its worst recession in 30 years is predicated on the fact that the country does not have the internal resources to cushion the effect of what the country is going through as a result of crash in oil prices
He said what the country should be doing to moderate the impact of the pandemic on the economy is to attract foreign capital into the economy.
He advised that the government should quickly pass the Petroleum Industry Bill (PIB) so that it could change the ownership of the oil sector by turning them into Incorporated Joint Venture (IJV).
Chukwu also advised that some physical infrastructure that are still viable could be concessioned to private sector investors so that they could bring capital to build those infrastructure.
Commenting, member of the Central Bank of Nigeria (CBN) Monetary Policy Committee and Director Centre for Energy and Petroleum Economics, University of Ibadan, Prof Adeola Adenikinju, said the drop in oil prices with other forms of buffer could spell doom for the economy.
He lamented that the drop in oil prices has exposed the economy to shocks, revealing its shortcomings which has made funding of the 2020 budget a difficult task.
But, to reverse the projection to gains for the country, he advised the country should urgently put some medium term measures in place in order to rebound the economy.
He said part of those efforts to rebound the economy would be for the country to begin to add value to its oil.
He said Nigerian does not have a reason to be a net importer of petroleum products, saying the volume of gas should be able to industralise the country and other allied sectors.
He said other by-products from oil have not been well harnessed due to our over dependence on oil, saying when this is done it will grow other sectors and create jobs.
He equally said many sectors of the economy are contributing poorly to the Gross Domestic Product (GDP) by harnessing the values in those sectors.
He said the government should develop the agric sector so as to contribute more to the country’s GDP by developing policies that would encourage more people to move into the sector.
The precarious financial situation of the country may have informed the decision of the Federal Government to drawdown its $3.4 billion contributions with the International Monetary Fund (IMF).
The plan to drawdown on the country’s contribution with the IMF may not be unconnected with the financial crises confronting the country occasioned by low oil prices and the outbreak of Coronavirus
Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had stated this at a ministerial briefing in Abuja recently.
The Minister said Nigeria has approached the IMF to have a full drawdown of the maximum amount which is the total $3.4 billion contribution.
However, she said going forward, the country may still request on the maximum amount or less, adding that the IMF has made provisions for member countries to draw between 50 to 100 percent of its contributions.
Ahmed explained that about 80 countries have already approached the IMF for withdrawals of their contribution.