By Omoh Gabriel , Group Business Editor
2010 is probably a year that many innocent Nigerians will be made to pay for the lack of policy direction and recklessness of their leaders. When Dr.Â Ngozi Okonjo-Iewala became minister of Finance and the chairperson of Obasanjo Economic management team, she introduced the excess crude revenue account to which monies realised from the sale of crude oil above the budget bench mark was saved. The account, in no time, blossomed following favourable oil price. It rose to as much as $20 billion. States, local government started the agitation for its sharing.
While the money, by law, was to be disbursed ifÂ price fell at the international oil market consistently for three months below the budget bench mark to argument the short fall, the call for sharing was yielded to. For the greater part of last year and early this year funds from the account was used monthly to support the budget.
Now the account is grossly depleted to the tune of $4.8 billion that can hardly support the regular monthly allocation to the three tiers of government in the country. Now states as well as local government councils are faced with the stark reality that they may not be able to sustain their budgets without allocationÂ from the federation account.
To underscore the event that has led to this situation the Late President Umaru Yarâ€™ Adua, in the provision of the 2009 budget, introduced austerity measures in Ministries, Departments and Agencies to combat the financial constraints facing the nation. This,Â in the course of the implementation of the 2009 budget, brought about belt tightening. This was so as the revenue expectation fell short of target.
Though the price of crude oil recovered and shut up above the budget bench mark of $45 per barrel, the fact that OPEC cut Nigeria quota to 2.05 million barrel per day and the activities of the militant reduced the production level to an average of 1.8 million barrel per day while the budget was predicated on oil production of 2.292 million barrel per day. The difference between the budget bench mark and the actual price obtained was not enough to compensate for the drop in the volume of crude oil production.
He said the act provision â€œempowers the executive to raise a deficit of 3 per cent of GDP but that the current deficit is 3.3 which is above the provision of the act and would need the approval of the legislature for it to standâ€. Making for clarification on the budget the minister said that the source of funding of the deficit had been well articulated. He said that â€œthe deficit is to be financed by out standing signature bonuses, privatisation proceeds, recall of $200 million from
The year 2010 seems, to be the beginning of the biblical pharaohnicÂ seven years of famine and bad harvest that followed a previous seven good years of harvest. Pharaoh the king of Egypt had been forewarned in a dream where he saw seven fat cows that were devoured by seven lean cows which afterward appeared not to have eaten any thing. The great dream interpreter, the proverbial Joseph asked the king to save for the seven lean years, his advise was yielded to and Egypt was spared the harrowing experience of famine.
The economic worries of the country were added to by the banking reform which by its nature of implementation eroded confidence in the financial sector. Since August 14, the national economy has known no peace. Banks have not only reduced lending to the private sector, they have sent 10, 000 of the industryâ€™s work force into the already congested labour market. Industries have either reduced capacity utilisation or have closed down completely. While previously Nigeria was the preferred portfolio investment destination, foreign investors have not only divested from the nation capital market, many have moved their investment to neighbouring countries.
The economy is facing financial haemorrhage as Nigerians and corporate bodies are moving funds massively out of the country as well as from naira to dollar. In the five weeks of January 22, 2010 to 5th March for instance, a total of $6.734 billion went out of the country. While about $ 1.383 billion went out in the weekÂ ending 22nd January, the amount of foreign exchange flowing out of the country rose to $ 1.457 billion for the week ending 4th February.
Capital out flow from the country further rose to $ 1.740 billion for the week ending 12th February and moved downward to $ 1.091 billion for the week ending 26th and a little further down to $1.061 billion on the 5th of March.Â This has resulted in the crash of interest rates in the money market. Bank treasurers have attributed the crash of interest rates to the ongoing CBN reforms where over N 600 billion of bank deposit is in the CBN vault at one per cent interest rate as banks have refused to lend just as investors are holding back their investment decision. The movement of funds out of the country comes by way of Nigerian residents buying up dollars with their naira and moving it off shore.
The trend became noticeable in October 2009 where in fact in a matter of weeks several billion of dollars were purchased through the banks, bureau de change. Available figure suggest that during the five weeks period a total of $4.648 billion were purchased through the CBN Dutch auction while a total of $1.344 billion were done through direct remittance by the CBN. Of the $6.734 billion that went out of the country through official means only $100.339 million had letters of credit backing suggesting that bulk of the out flow was capital flight.
The movement of funds is also in travels- business travel allowance, personal travel allowance, direct remittances etc. According to data obtained from CBN in the eight weeks the total amount of foreign exchange that went out through travels amounted to $ 72.067 million, Debt service/payment $ 799.194 million.
What this means is that there will be no additional job created in 2010 and many who are currently on employment may lose their jobs. As the government resort to domestic borrowing in 2010 to implement the N 1.07 trillion deficit in the 2010 budget provision, it will crowd out the private sector from having access to bank loans which are hardly there anyway, as it will jack up interest rates. Though deposit rate has crashed to 3 per cent in the banks, lending rates still remain as high as 22 per cent giving the banks which dare to lend a spread of about 19 per cent. As interest rates goes up only the government can afford to borrow at all cost. Many manufacturers as of today have been denied access to w
orking capital and have either reduced their production levels which has led to low capacity utilisation, cut back in production line, no expansion or investment in new production line or close down and send their work force to the labour market.