…Projects 3.5% drop in Nigeria’s GDP
…Confirms elimination of fuel subsidy
…Adjusts oil production cost, output to $28/barrel, 1.7mbd
…Lowers estimated earnings projections to N3.9trn
By Michael Eboh
The Federal Government, Wednesday, announced significant changes in key parameters in the 2020 budget, cutting down its projected earnings from the oil and gas sector by 80 per cent to N1.1 trillion and also slashing its total projected earnings by 54.65 per cent to N3.9 trillion.
This was revealed by a Federal Government team, led by Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, at a citizen’s dialogue webinar on Nigeria’s response to the fall in oil prices and the COVID-19 pandemic. The dialogue was organised by the Ministry of Finance, Budget and National Planning and the United Kingdom Department for International Development (DFID).
Other government official who supported Ahmed at the session included Prince Clement Agba, Minister of State, Budget and National Planning; Mr. Ben Akabueze, Director General, Budget Office of the Federation; while the Nigeria Economic Summit Group (NESG), was represented by its Chief Executive Officer, Mr. Laoye Jaiyeola.
As a result of the impending economic difficulties, the team said the Federal Government is projecting Nigeria’s Gross Domestic Product (GDP) to contract by 3.5 per cent, year-on-year in 2020, while oil earnings is projected to also decline by 90 per cent in the same year.
Furthermore, the Federal Government benchmarked Nigeria’s oil earnings on a crude oil output of 1.7 million barrels per day, 22 per cent lower than the initial projection of 2.18 million barrels per day in the 2020 budget.
It projected crude oil prices to average $20 per barrel in 2020, as against the country’s 2020 budget benchmark of $57 per barrel, while it disclosed that the average production cost of Nigerian crude oil had been revised downward to $28 per barrel from $33 per barrel, noting, however, that this would have implications for Petroleum Profit Tax.
Confirms fuel subsidy removal
The Federal Government team also warned that a severe outbreak of COVID-19 in Nigeria could magnify the impact of low oil price and weaker domestic crude production, while it confirmed that payment of fuel subsidy had been eliminated.
The government noted that although similar challenges were faced in 2016, the impact would likely be severe as Nigeria currently has significantly lower fiscal buffers.
It said, “Estimated net oil and gas revenue available for Federation Account Allocation Committee (FAAC) distribution is now forecasted 80.0 per cent lower at N1.1 trillion (versus N5.5 trillion previously), despite a N649 billion reduction in allowable fiscal deductions by NNPC for federally funded projects/expenditures. Specifically, projected PMS under-recovery has been reduced from N457 billion to zero.
The Federal Government team, however noted that the budget office was still in the process of finalizing its revision of the 2020-2022 Medium Term Expenditure Framework and Strategy Paper (MTEF/FSP) as well as an amendment to the 2020 Appropriation Act.
On the non-oil side, the Federal Government slashed its revenue projectiojns from the Nigerian Customs Service by 20 per cent to N1.2 trillion, compared to initial projection of N1.5 trillion in the 2020 budget, while it also cut down the amount expected to accrue to the Value Added Tax Pool Account to N2.0 trillion, as against N2.1 trillion earlier projected in the budget.
To this end, it stated that the amount accruable to the Federation Account was now projected at N3.9 trillion, as against N8.6 trillion previously projected in the 2020 budget, while it put the projected federal government receipt from federation account for 2020 at N2.4 trillion, compared to N4.8 trillion previously stated.
It added that, “States and local governments are now likely to obtain N2.1 trillion and N1.5 trillion, apiece, from FAAC (compared to N3.3 trillion and N2.5 trillion, respectively, in previous estimates).
“Projected N5.6 trillion budget deficit to be financed through privatization proceeds (N126 billion), drawdowns from FGN Special Accounts (c.N260 billion), bilateral/multilateral drawdowns (N387 billion), and new borrowings (N4.6 trillion).
“Debt service pressure to be eased by significant moratoriums on new loans (IMF’s Rapid Instrument of $3.4 billion, which comes with three years moratorium) and expected deferrals of current debt service obligations until macro conditions improve.”
As part of measures to alleviate the impact of COVID-19 on the country, the Federal Government team said the government had set up an Economic Sustainability Committee to, among others, assess systemic vulnerabilities and develop programs that would make the expected recession short-lived and ensure sustainable long-term growth.
…FG planning bailout for aviation sector
The team further stated that the government was considering a bailout, in form of a funding support for the aviation sector, while measures were underway to strengthen agricultural value-chain with strategic focus on land acquisition, road networks, and funding..
In addition, the team noted that the government was also planning to offtake agro-products when market conditions become unfavourable.
The team further stated that President Muhammadu Buhari is likely to decide on the closure of the country’s land borders after the current health crisis, especially as negotiations with neighbouring countries had been smooth
In his own submission, chief executive of the NESG, Laoye Jayeola, disclosed that the Nigerian economy needs N10.1 trillion worth of interventions, noting, however that current intervention capacity stands at N4.5 trillion.
He explained that the implied funding gap of N5.6 trillion was likely to be covered by medium to long term domestic borrowing, external borrowings, poossibly from the World Bank, the International Monetary Fund (IMF), the International Finance Corporation (IFC) and the African Development Bank (AFDB), and through quantitative easing.