Godwin Emefiele, CBN Governor


The situation in Nigeria seems to be going from bad to worse. Every day brings fresh challenges as new developments come fast and thick, leaving government largely unprepared and clueless about the next move. A week ago it seemed the worst fears were over as the nation was declared Coronavirus free; by Wednesday last week, Nigeria was back at the radar with eight cases of the dreaded virus sparking fresh panic across the country.

But this is not the only problem facing the country; the economy, expressed in the 2020 budget appears to be as troubling as the health challenges posed by the Covid 19. There was a flurry of activities and pronouncements by the federal government in response to the unfolding economic issues facing the country. Since the advent of the Covid 19 threat and the crash of oil price over a month ago anxiety has been high on the economic outlook for the year.

It is now evident that the parameters or benchmarks for the budget have been upturned and the budget itself in jeopardy. The benchmarks include oil price of $57 per barrel; exchange rate of N308 per dollar; 2 million barrels of crude per day; Gross Domestic Product, GDP, rate of 2.5 per cent, and total revenue of N10 trillion.

Finance minister, Mrs Zainab Ahmed, had a forth night ago said the situation was grave and a review of the budget may be imperative in view in of the falling price of oil in the global market and low demand.

At the time oil price was still trending at over $50 per barrel, a little below the 2020 budget benchmark of $57. But by last week, the price had dropped to below $30 per barrel, thus raising fresh fears of a possible recession this year.

The initial problem which had to do directly with the Covid 19 pandemic and the lock-down in industrial activities in China and India, our major customers, has been compounded and worsened by the trading feud over price and production output between Russia and Saudi Arabia, two of the largest producers of oil in the world. With the politicization of the problem, the hope of an early resolution and rebound of price seems to be disappearing, further putting the economy in jeopardy.

In a motion of urgent national importance, the Senate last week raised the issue of a downward review of the budget, following the presentation of a joint committee report by Solomon Adeola, which called for immediate action on the budget to avoid the economy plunging into recession. They called on the government to suspend all non-essential expenditures such as travels and ceremonies.

On Wednesday, the Presidential Economic Advisory Council, PEAC, warned the government on the imminence of recession given the worsening global oil market, which has seen growth rate drop to two per cent, the lowest in three decades. With this development, it is obvious that Nigeria’s growth rate previously projected at 2.5 per cent may be a tall order. The EAC is an 11 man team of eminent economists and seasoned development managers, appointed by President Buhari to advise him on the economy.

However, the last straw that may break the camel’s back appears to be the impending lockdown of the country following new discoveries of the Covid 19 cases in the country last week. A forth night ago, Nigeria was declared Covid 19 free; by mid-week, there were eight cases compounded by the Enugu scandal that exposed government unpreparedness for the challenge.

Again, the government was forced last week to review downward, the pump price of fuel from the previous N145 per litre to N125; a reduction of 18 per cent although global oil prices had dropped by almost 50 per cent. This may be a cosmetic gesture by the government but its implication for revenue is tremendous, given that the NNPC is still subsidising the product. The N20 reduction in the pump price may further negatively affect government revenue from oil.

Similarly, the government after the weekly Federal executive council meeting, FEC, announced a 20 percent cut in the 2020 budget by N1.5 trillion in response to the falling oil price and worsening revenue crisis. The budget was originally N10 trillion, but with this cut it comes down to N8.5 trillion. But experts still doubt the practicality of this amount in view of the aggravating situation in both within and outside the country.

Brent crude price which is the benchmark for Nigeria’s crude price is down 22.5% YTD. We recall the 2020 budget was benchmarked on an oil price assumption of US$57/bbl and oil production of 2.18mb/d.

According to the 2020 budget document, Nigeria’s crude oil sales were expected to contribute 35% of the Federal government’s total revenue. In the 2019 budget performance, we note that despite oil price remaining in line with the budget benchmark, Nigeria’s oil revenue still underperformed significantly with a performance of 52% as at 9M 2019 due to lower than budgeted production levels.

With the impending grounding of economic and social activities from this week for the next four week, it is obvious to take a huge toll on the economy, especially the generation of revenue which is the sore point of the budget with over a trillion in deficit. As the downward review takes effect it is the capital budget, which has to do with some legacy projects, such as the Second Niger Bridge, the Lagos-Ibadan road, the Mambilla power plant and the Abuja-Kano road that will be the likely casualties.

The Federal Government (FG) ran a deficit budget of N1.14 trillion in Q4 2019 compared to the N479.62 billion recorded in Q3 of 2019. The Q4 2019 Economic Report released by the Central Bank of Nigeria disclosed that the government earned N938.72 billion and expended N2.07 trillion within 3 months leading to a deficit of N1.14 trillion.

The government had projected to spend N2.59 trillion on capital vote in the period under review. The projected amount, when compared with the actual amount spent, indicates a 20.1% shortfall.  Meanwhile, the N938.72 billion generated by the country was 55.6% and 46% below the quarterly budget estimate as well as revenue generated in Q3 2019 respectively.

The breakdown showed that Federation Account accounted for 83.8% while Federal Government Independent Revenue, Value Added Tax (VAT), Exchange Gain and Non-oil accounted for 8.7%, 4.4%, 2.7%, and 0.4%, respectively. Total expenditure showed that the recurrent component accounted for 73% while capital and statutory transfers accounted for 21.3% and 5.7% respectively.

Of the recurrent expenditure, debt service payments by the government were 25.9%. Federally-collected revenue in Q4 of 2019 settled at N2.6 trillion which was lower than the quarterly budget of N3.76 trillion by 30.8%. Meanwhile, the decline in federally-collected revenue (gross), relative to the quarterly budget, was attributed to shortfalls in both oil and non-oil revenues.

Gross oil revenue, at N1.56 trillion or 60.1% of the total receipts, was below the quarterly budget by 35.3% but above the receipt in the preceding quarter by 16.7%. Gross non-oil revenue at N1.04 trillion fell below the quarterly budget of N1.34 trillion by 22.6% as well as below the level in the preceding quarter by 33.9%.

The Deb t Management Office (DMO) released Nigeria total debt stock for 9 months ended 2019 and largely expected is a further increase in country’s debt level year on year by 17 percent to N26.2 trillion ($85.39 billion at an official exchange rate of N307 to $1).

Nigeria’s rising debt has also been a source of concern to many people. Recently members of the Monetary Policy Committee voiced their concerns at the last MPC meeting in their personal statements.

“The rising public debt levels in Nigeria when added to a variety of other financial sector specific risks seem to dampen the prospects of growth in the near term,” Dr Robert Asogwa had said.

He stated that the stock of total public debt rose from $79.4bn at end of December 2018 to $81.2bn at end of March 2019, adding that the external debt component had moved from $18.9bn in December 2017 to $25.2bn in December 2018 and further to $25.6bn by March 2019.

Asogwa said, “Even though such countries as Brazil, India and China have higher debt-to-GDP ratios as compared to Nigeria, these economies are also several times larger than Nigeria. Moreover, the increasing appetite for internationally private-held debt and a persistent hunt for Eurobonds are worrying.

“Besides the associated high cost of borrowing, the huge debt levels crowd out other development spending, given the portions of government revenue allocated annually to service the debt. A coordinated domestic revenue expansion with simultaneous fiscal prudence will be key to addressing the current weak fiscal position of the economy.”

Another member, Prof. Mike Obadan, described the accumulated public debt as worrisome, considering the monetary policy implications, among others.

He said, “The Federal Government debt poses a serious burden with nearly 30 per cent of the budget devoted to debt servicing. Although the debt-GDP ratio is relatively low, the debt – revenue ratio is very high. And it must be stressed that GDP is not used to service debt; rather is revenue in the case of domestic debt or export earnings in the case of external debt.

To finance the implementation of budget 2019, the Central Bank of Nigeria raised ₦8.5 trillion overdraft for the Federal Government as expected receipts from oil dropped in 2019.

Afrinvest in a review stated that in 2019, total revenue expectation of the government under-performed budget by more than 31%, thereby widened budget deficit. According to the review, FG’s total expenditure of ₦9.4 trillion was financed by aggregate revenues of ₦4.8 trillion in the period. Analysts said this widened deficit to ₦4.6 trillion compare to deficit of ₦1.9 trillion that government had planned.

Afrinvest said they suspect that the 10.0% contraction in oil prices to US$64.0/bbl. in 2019 more than offset the 5.1% expansion in oil production to 2 million barrels per day as well as the performance from other sources. However, government drives to diversified earnings base yield significant result in the period as non-oil revenue expanded 17.7% to ₦4.7 trillion, with a higher share of revenue at 45.8%.

Also, Value-added Tax (VAT) bloated by 7.2% to ₦1.2 trillion while customs and excise duties grew fastest at 18.7% to ₦837.4 billion. The CBN reported total expenditure of ₦9.4 trillion, which is the highest on record, although total revenue of ₦4.8 trillion under-performed the budget by 31.4%.

The implication was a record-high deficit of ₦4.6 trillion, against the budget of ₦1.9 trillion.

“As at third quarter of 2019, the Budget Ministry reported that the retained revenue of the FG was ₦3.0 trillion while revenue from special accounts contributed an additional ₦1.3 trillion for a total revenue of ₦4.3 trillion, indicating that CBN’s projected deficit may be far off the mark”, analysts said.

“As the FG raised only ₦802.8 billion in the debt market in 2019 to fund its budget, we believe the CBN’s sustained monetisation of the deficit drove budget implementation”, analysts said.

What this means is that given the underperformance of the budget in spite of the relative the stability in the oil sector, both locally and globally, there may be little hope for the success of the 2020 budget as a result of the turmoil prevailing in the global economy. Experts believe the underperformance with attendant increase in deficit, debt and decline in GDP will be expected this year.

Dr. Vincent Nwani, economist and consultant, said the downward review of the budget was inevitable but it is also important to know the areas or sub-heads affected in the cuts.

“We expect the cuts to be on consumables and overheads which are often padded and repeated annually as conduits to siphon money; we don’t expect the capital votes to be affected much because that would be bad for the economy as the growth portion of the budget.

“Just cutting the budget by 20 percent is arbitrary without giving us the details of the areas affected; it is important the legislature be involved in this matter so that we can know the details. Government revenue is down so cutting the budget is necessary but it can still be down without causing big damage to the economy.

“Our challenge in the country is that government is not creative in the way it handles things; look at what other counties are doing; it shows we are not thinking creatively but just reacting to problems. This budget is in real trouble and unless government is deliberate and resourceful in managing it, there will be serious issues like recession in the end”.

For instance, he said that government adjustment of the fuel pump price is unscientific and confusing because we don’t know how they arrived at it and the firms are not expected comply immediately as their old products are still in stock.


Please enter your comment!
Please enter your name here