By Nkiruka Nnorom
DESPITE the cut in the 2020 budget revenue projection by the Federal Government, on the backdrop of the fiscal headwinds following the impact of the Coronavirus, COVID-19, pandemic and falling oil prices, the Nigeria Economic Summit Group (NESG) has said that the revised revenue projection at N5.08 trillion may still not be met.
NESG, a private sector led think-tank, in a report titled: “Sectoral Impact Assessment and Optimal Policy Response: COVID-19, Global Oil Price and the Nigerian Economy”, said that falling crude prices, in addition to weak export demand, would significantly put pressure on federal and state governments’ finances.
Though it affirmed that the Nigeria’s economy has been fragile even before the outbreak of COVID-19, it argued that the fiscal effect of the fall in oil price would be enormous on the country with severe sectoral implications.
It further stated that limited economic activities arising from lockdown of some states and restriction of movement would result in poor performance of non-oil revenue in 2020.
The Report stated: “Nigeria, being a major dependent player in the oil market faces a dual challenge of dwindling windfall from oil and economic constriction as global lockdown continues on the back of COVID-19. While the fragility of the economy persists, the oil market impacts the Nigerian economy through its dominant contributions to export earnings, foreign exchange inflows, movement in external reserves and government revenue.
“From a fiscal point of view, the 2020 budget of the federal government was based on $57 per barrel benchmark, which was later revised to $25 per barrel. Falling crude prices, in addition to weak export demand, would significantly add pressure on Federal and State governments’ finances. This means that the revenue projections in the revised 2020 budget will be unmet, thereby constraining government’s ability to meet its obligation such as payment of salaries and financing critical social and infrastructure projects in the year.
“Many states in Nigeria rely solely on allocations from the Federal Account Allocations Committee (FAAC), which are predominantly oil-dependent. Falling oil price means that many states will have difficulty in paying salaries of workers. This will have negative implications on aggregate demand and the performance of key sectors like construction, cement and manufacturing.”
NESG also stated that shutdown of production facilities and lockdown of several states across the country would have negative implications on investment, aggregate demand and overall economic growth, adding that the impact of the lockdown is expected to reflect on GDP growth figures for the first to second quarters of 2020.
Recall that the government had in response to COVID-19 and falling oil prices slashed the 2020 budget to N10.29 trillion from the initial N10.59 trillion, while the revenue projection was also reduced by N3.3 trillion from the initially approved amount of N8.41 trillion to N5.08 trillion.