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…As oil revenue slumps by 36% lRecurrent dominates FG’s expenditure with  80%

…High crude oil price now a curse —experts

By Babajide Komolafe, Economy Editor, Yinka Kolawole & Nkiru Nnorom, LAGOS

The increasing impact of fuel subsidy on the economy generated fresh outrage from economic experts yesterday as deficit spending by the Federal Government rose by 6.5 per cent, month-on-month, MoM   to   N580 billion in February, caused by a 36 per cent decline in oil and gas revenue into the federation account during the month.

The decline in oil revenue, according to the Central Bank of Nigeria, CBN, in its monthly economic report for February, is due to value shortfall recovery for Premium Motor Spirit (petrol) which represents fuel subsidy cost for the month.

According to the CBN report, oil revenue fell to N208.20 billion in February from N329.99 billion in January, as the nation recorded zero revenue from crude oil and gas exports for the second consecutive month, while revenue from Domestic Crude Oil/Gas Sales fell by 43 per cent percent, MoM, to N41.92 billion in February from N74.40 billion in January.

The CBN report also showed that the 6.5 per cent rise in FG’s deficit spending in February  was driven by 8.3 per cent decline in revenue and 0.15 per cent increase in aggregate expenditure during the month.

The decline in aggregate revenue was caused by 22 per cent decline in Federally Collected Revenue, triggered 36.9 per cent, MoM decline in oil revenue during the month. 

The report stated: “ FGN revenue declined in February 2022 driven by a lower allocation from the Federation Account, as net oil and gas revenues were much lower than expected. 

“At N371.67 billion, the provisional revenue of the FGN dropped by 8.3 per cent, relative to the preceding month. It was also short of the budget target by 44.2 per cent, indicating perennial revenue challenges.

“Despite a shortfall in revenue, federal government aggregate spending rose marginally, on account of higher recurrent expenditure, as the government sought to rev-up consumption, especially of vulnerable groups.

“At N952.61 billion, provisional aggregate expenditure rose by 0.15 per cent, from N951.14 billion in January 2022, owing to a 22.7 per cent rise in recurrent expenditure. The rise in total expenditure was dampened by the 50.0 per cent decline in capital expenditure.

“Thus, recurrent spending maintained its dominance in total expenditure, accounting for 80.9 per cent; while capital expenditure and transfers constituted the balance of 14.8 per cent and 4.3 per cent, respectively.

“The decline in FGN retained revenue and increase in FGN outlay further expanded the fiscal deficit in February 2022. At N580.93 billion, the provisional fiscal deficit of the FGN was 6.5 per cent above the level in the preceding month.

Federation Account operations

“Provisional federally collected revenue declined in February 2022, due to operational constraints, and the subsisting effects of the pandemic as well as value shortfall recovery for PMS.

“Provisional data indicate that federally collected revenue, at N799.60 billion, fell below the levels in the preceding month and the proportionate monthly target, by 22.0 per cent and 15.4 per cent, respectively. 

“The shortfall was ascribed, largely, to lower receipts from Petroleum Profit Tax (PPT) & Royalty, and Corporate Tax components. Non-oil accounted for a dominant 74.0 per cent of gross federally collected revenue, in the period, while oil revenue constituted the balance of 26.0 per cent, highlighting the persistent challenges in the oil sector.

“Further analysis indicates that, at N208.20 billion, oil revenue was lower than collections in the preceding month and the proportionate budget benchmark by 36.9 per cent and 58.8 per cent, respectively.

“All components of oil revenue fell short of their pro-rated budget benchmark, reflecting the effects of operational constraints. 

“Likewise, non-oil receipts, at N591.40 billion, fell by 3.8 per cent against earnings in January 2022, but were higher than its proportionate budget target by 14.0 per cent. The development was driven by a 33.6 per cent decrease in corporate tax, reflecting the cyclicality of corporate tax receipts.”

Soaring crude price now a curse – Muda Yusuf

In his reaction, Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, stated: “This did not come as a surprise given the reality of expenditure growth trend in recent years. The fiscal space is weak, the fiscal headroom is severely limited, yet expenditure has been ballooning. The natural outcome is the surging fiscal deficit, mounting debts and growing debt service burden.

“The soaring crude oil price, rather than being a blessing, is now a curse because of the escalating fuel subsidy pressure on the finances of the government. Sadly, the growth of recurrent spending is not abating.

“The massive oil theft and the security vulnerabilities in the oil producing areas are making it difficult for us to take advantage of the spiking oil price. We cannot even meet our OPEC production quota. 

“The situation has been compounded by the massive importation of petroleum products because of the collapse of our refineries. A huge chunk of our foreign exchange earnings is committed to fuel importation, putting pressure on our foreign exchange reserves, and exporting premium jobs to other countries. These challenges of the fiscal crisis are largely self-inflicted.”

Fuel subsidy, wasteful policy — David Adonri

While noting that   the 2022 FGN budget has a high deficit component, David Adonri, Vice Chairman, Highway Securities, described fuel subsidy as a wasteful policy that fuels consumption and corruption. He said that the negative impact of mounting fuel subsidies, low oil revenue due to underproduction, rising inflation and huge debt servicing may force FGN into serious financial distress. 

He said: “Fuel subsidy has remained an albatross hanging over the Nigerian economy for several years. From an economic point of view, it is a wasteful policy which fuels consumption and corruption.  However, the economy has for long been pampered by it, so its sudden removal can be injurious. When Dangote mega refinery comes on stream and the entire petroleum industry is deregulated, fuel subsidy may be eliminated naturally.”

Rise in deficit not far-fetched, says PFI Capital CEO

Similarly, Managing Director/Chief Executive, PFI Capital, Peter Elege, noted that the rise in FG’s deficit is not surprising, given that fuel subsidy allocations have been reviewed upward twice this year.

He said: “The rise in   FG’s deficit    by 6.5% to N580.93 billion   in February 2022 on the back of a 36% decline in oil revenue is not far-fetched as oil subsidy has significantly increased since February 2022, on the back of the impact of the Russian-Ukraine crisis and its aftermath sanctions, resulting in supply disruptions.

“Notably, oil prices had been trading below $100/barrel before the invasion of Ukraine. After the invasion, Brent Crude Oil traded above $100/barrel and as high as $127.98/barrel on March 08, 2022. With the Nigerian PMS still maintained at N165/barrel despite increasing oil prices, this has resulted in shrinking oil revenue, as Nigeria is currently a net oil importer.

“Amidst skyrocketing prices, the FG aims to maintain the PMS price at N165/barrel. This has resulted in increased borrowing as subsidy allocations have been revised upward at least twice to meet up spiralling variance.

“In a nutshell, the rise in deficit spending by 6.5% to N580.93bn in Feb’22, despite 36% oil revenue decline is highly attributable to the rising variance between N165/barrel and the current skyrocketing PMS prices

Inefficiency in the energy sector — Adedokun

On his part, Dr Adebayo Adedokun, a trade and finance expert, and lecturer in   the Department of Economics, University of Lagos, said that the mounting fiscal deficit of the Federal Government, though due to fuel subsidy cost aggravated by the Russia-Ukraine war, is the outcome of inefficiency in the nation’s energy sector and lack of capacity to solve energy problems, stressing that the solution lies in asking relevant questions and finding optimal decision that will reduce govt deficits and at the same time, it must not jeopardise social welfare contact of govt with the people. 

He said: “Current subsidy regime is shrouded in mystery, it is definitely unsustainable for Nigeria. The question we should ask ourselves is that ‘ do we know our estimated daily demand for petroleum in Nigeria’, can we estimate our weekly demand or better still our monthly demand?, 

“That of course will give us a rough idea of what is to be subsidised, the landing costs is higher now because of global energy crisis as a result of Russia-Ukraine war on-going, the only way we can reduce the effect is when we don’t have to import refined products, at least, the cost of shipping, insurance, legal fees etc will be cut if we refine our products locally, 

“I’m afraid, we still have to live with the consequences of our inefficiency and lack of capacity to solve energy problems that we are smarting with. The solution lies in asking relevant questions and finding optimal decisions that will reduce government deficits and at the same time, it must not jeopardise social welfare contact of govt with the people.”

Net effect on oil revenue’ll remain negative — Olubi

Mr. Rotimi Olubi, Managing Director, ARM Securities Limited, said: “Oil subsidy has widened significantly from the budgeted numbers due to higher oil prices globally. This means that the net effect on oil revenue will remain negative for now.”

Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.