By Emma Ujah, Abuja Bureau Chief
ABUJA—The Federal Government yesterday, reassured that Nigeria is financially sound and has been meeting its local and international financial obligations despite dwindling revenues from crude oil exports. The assurance came from Minister of Finance and Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala.
The minister, who gave the assurance at a crowded press conference in Abuja, said: “Despite the dwindling revenue of the nation due to falling crude oil prices and decrease in output, the nation is not broke, as feared in some quarters”.
There have been concerns that the consistent fall in accruals to the federation account in recent months could jeopardize implementation of the 2014 budget but, the minister said in Abuja that contingency plans were being put in place to forestall any immediate adverse effect on the budget.
“Nigeria is a country that is dependent on one commodity (oil) and that commodity is dependent on how much the buyers want to buy. We had a yo-yo kind of expenditure pattern before 2003 but after that even when there was a fall in the price of crude from $140 to about $35 or $38 between 2003 and 2008, our economy remained stable because we had accumulated about $22 billion in the Excess Crude Account.
“It is the same thing now. We may have to cut down on some of our expenditure. We may have to mobilize more revenue; we have to look at the fiscal policy; we have to look at the monetary policy — all of these have to come together and we are looking at them right now in the Ministry of Finance.
Oil and nation’s economy
“I want to assure Nigerians that we are putting in place contingency plans so that our economy remains stable. Right now, we have fluctuations in the price of crude oil and when that happens, it means that the money that comes into the coffers is a little bit small. Does that mean that the country is broke? If we are not able to pay salaries to people or meet other obligations then we can say the country is broke but we have not got there. Nigeria is not broke”.
The Federation Accounts Allocation Committee, FAAC, meeting in Enugu, last week, could not share the monthly revenue due to paucity of funds, but the minister said they would reconvene today to distribute the statutory revenue accruing to each tier of government for the month’s expenditure.
According to the minister, the current realities of falling oil prices and reduction in quantity of crude oil production have made the diversification of the economy more imperative now than ever.
She added that in spite of the global economic challenges the Nigerian economy remains resilient, growing at about 6. 5 per cent, making it one of the fastest growing economies in the world.
Her team at the Ministry of Finance, she added, had been working round the clock to ensure that the real sectors of the economy, especially, agriculture and power, among others received the needed impetus to boost productivity and provide jobs.
$14.1bn foreign loan
Dr. Okonjo-Iweala revealed that a whopping $14.1 billion had been facilitated by her ministry for various sectors’ programmes and projects at concessionary rates of sometimes as low as three per cent from the international finance market.
Some of the loans, she added have moratorium of between 5-10 years and are to be repaid in 25 years, thus making them cheaper and more attractive than borrowing from the domestic market.
She assured, however, that the administration was very mindful of the debt-overhang history of the nation and would not borrow so much as to put the nation under another debt burden, as was the case until 2005.
On the Federal Government Housing programme, the minister disclosed that successful applicants would receive letters intimating of their successful applications in 10 days and that the initiative would be a revolution in the nation’s quest for sufficient housing.
Investment plans unaffected by weak oil—SWF
Meanwhile, Nigeria’s Sovereign Wealth Fund said its investment programme over the next six months, including on infrastructure, will go ahead, even as revenues that provide its capital are hit by falling oil prices. Uche Orji, Chief Executive of the Nigeria Investment Authority, said that one of the vehicle’s core aims is to manage oil export windfalls to cushion the economy in harder times.
“The oil price has come down but frankly, let’s not forget why this fund was set up. It was to prepare us for days like this,” he told Reuters on the sidelines of an African investment conference in London yesterday.
Orji conceded that weakness in the international oil market would affect the fund but he remained focused on deploying existing assets to investment in infrastructure projects in sectors such as transport, power and healthcare.
“Obviously we get funded from the oil price so if it’s lower, it will affect us. But our plan in the next six months is to fully deploy what we’ve been given. We still haven’t fully deployed our capital yet,” he said.
Oil prices have dropped more than 25 per cent since June on strong supply, signs of weak growth in demand and indications that key oil producers, particularly Saudi Arabia, have a limited appetite to cut output to bolster prices.
Nigeria established the Sovereign Investment Authority (SIA) in 2011 with $1 billion seed capital in an effort to manage oil export revenues.
The fund is split into three components, a ‘Stabilisation Fund’ to act as a buffer against economic turbulence, an Infrastructure Fund and a Future Generations Fund.
“We still have gaps in our infrastructure fund. We’ve only made about three commitments so far; so we have quite a few more to go,” he said.
According to the fund’s website, the infrastructure vehicle accounts for up to 40 per cent of total assets with a similar amount allocated to the portion managed for future generations and the remaining 20 per cent set aside for economic stabilisation.
Naira falls by 0.16 per cent
In a related development, the Naira eased to an eight-month closing low of 165.55 against the dollar, yesterday, due to strong dollar demand from importers and companies reducing their exposure to the local currency, dealers said.
The naira fell 0.16 percent from Monday’s close of 164.28 to the dollar, a level last seen on Feb. 21, a day after the President suspended the former Central Bank Governor, sending financial markets into a tailspin.
Concerns about the falling price of oil, Nigeria’s main source of foreign currency earnings, contributed to the drop. The local subsidiary of Chevron sold $45 million to Nigerian banks, dealers said, but that was not enough to support the naira.
“At the current level, we expect the Central Bank to step in or else the Naira will fall further,” one dealer said.
The currency has lost 4.1 per cent against the dollar so far this year and is trading above the Central Bank’s target range of within 3 per cent of 155 naira to the dollar.
Demand for hard currency was coming from local importers and companies worried about the risk of a devaluation, dealers said.
“We admit that prospects of a near-term devaluation have risen, thanks largely to the recent decline in oil prices,” economists at Morgan Stanley said in a note, adding that the authorities would be reluctant to devalue ahead of an election due in February.
Brent crude held gains around $86 a barrel on Tuesday as news of robust Chinese oil demand buoyed the market, although prices were capped by oversupply and concerns about the health of the rest of the global economy.