Tag Archives: Budget

‘Nigeria’s GDP Might Shrink’ Minister Warns

Finance, Budget and National Planning Minister, Hajia Zainab Ahmed has warned that Nigeria’s Gross Domestic Products (GDP), might shrink this year to -8.94 per cent unless there is economic stimulus.

Speaking with State House Correspondents after the FEC meeting, Mrs Ahmed, said with 40 per cent of Nigeria’s population classified as poor, the looming economic crisis would worsen their misery.

According to her, the global economy would also be dealing with the sharpest reversal since the Great Depression, as a result of the health crisis.

She added that the projected oil and gas revenue for the country, in the first quarter of 2020 suffered a 31% shortfall, representing about N125.52 billion.

“It is not news any more that these are very difficult and challenging times. We are facing a very significant economic downturn; a time that we have not seen in the history of our country.

“On the economy, COVID-19 has resulted in the collapse in oil prices. This will impact negatively, and the impact has already started showing on the federation’s revenues and on the foreign exchange earnings.

“Net oil and gas revenue and influx to the federation account in the first quarter of 2020 amounted to N940.91billion. This represented a shortfall of N125. 52billion or 31% of the prorated amount that is supposed to have been realized by the end of that first quarter.

“The economic growth in Nigeria, that is the GDP, could in the worst case scenario, contract by as much as –8.94% in 2020.

“But, in the best case, which is the case we are working on, it could be a contraction of –4.4%, if there is no fiscal stimulus. But with the fiscal stimulus plan that we are working on, this contraction can be mitigated and we might end up with a negative –0.59%”, she said.

“The Federal Government is committed to supporting the financial viability of states, including the suspension of payments in respect of commitments, debts that have been secured with ISPOs by the states at the federal levels.

“So, we have already implemented suspension of deductions of a number of loans that have been taken by the states from April and also in May.

“The Economic Sustainability Committee is responsible for providing overall strategic vision, policy direction and general oversight of the implementation amongst others”, she said.

Mrs. Ahmed assorted that the World Bank view is that the impact of the COVID-19 on Nigeria will lead to severe amplified human and economic cost, which will move the country into a recession.

“The World Bank planned a proposed package for immediate fiscal relief for the federal government. This will also involve policy-based policy budget support for the FG, focusing on measures to maintain macro financial stability and create fiscal space for proposed stimulus.

“The World Bank package has also got a proposal of $1.5billion for the states and this package will be dedicated to the states. And it will be a programme for results which the states are already used to implementing.

“So, the immediate fiscal relief for the states, as stated in the presentation, will include the acceleration of an existing programme to enable disbursement by end of September.

“So, the proposed $1.5billion plan will by end of September it would have been disbursed to the states. We are looking at an average of between N150billion to N200billion based on the plan to the 36 states. These are states that have already made some particular commitments and achievements so that they will be able to get immediate disbursements of parts of these funds”, she said.

Giving details of the balances in the various national accounts, the Minister disclosed “in the Excess Crude Account, as at 21 of May, 2020, we reported a balance $72.04 million.

Remittances from Nigerians in the Diaspora is now higher than the Federal Budget

Remittance from Nigerians in the diasporas (those living outside the country) has exceeded the Federal Government of Nigeria’s annual budget based on the black market rate.

Remittance brought in $25.08 billion last year while our 2019 national budget is $24.53 billion if you use black market exchange rate. Of course there are many elements of the remittance inflow which the World Bank system does not capture.

“With the burgeoning trends of the African diaspora, the citizens of the continent provides a massive economic opportunity both inside and outside Africa. According to the World Bank, the 10% increase in remittance inflows from 2016 to 2017, and is only expected to grow more in the coming few years. While the outside world may see the rising number of Africans moving abroad, this is actually fueled by the relative improvement of economic activities in OECD countries, not by a relative declining of the conditions within Africa. The economic value that Africans creating abroad are the main sources of remittances for Sub-Saharan African countries.

[…]

Nigeria which led the continent in remittances in 2017, fell to second in 2018. The figure, however, increased by 10% from $19.64 billion in 2016 to $22.3 billion in 2017. There are two main reasons behind this growth”.

Source: The World Bank

This number for Nigeria is more than the total national budget.

Source: Tekedia

Budget 2019 passes second reading at the Senate

The 2019 appropriation bill of N8.82 trillion has scaled second reading at the Nigerian the senate on Tuesday 19th 2019.

This development is coming three months after it was presented by
resident Muhammadu Buhari three months ago.

The budget has a recurrent expenditure of N4 trillion while N2 trillion goes for capital expenditure with N2.2 trillion and N492 billion for debt servicing and statutory transfers respectively.

When the floor was open for senators to comment on the Bill, Sen. Enyinnaya Abaribe, senator representing Abia central, described the appropriation bill as a “budget of impossibilities”.

The senator said the statistics show Nigeria is still being held down by more debt.

He said: “With a total debt service of 25.7% and capital budget at 23%, it means we are paying more debt. Out of every one naira, 68 kobo is paid out. The federal government needs to go back to the drawing board.”

Ben Murray-Bruce who represents Bayelsa east senatorial district said compared to those of previous years, there is nothing new in the budget.

“The budget is not different from what we have been presented in the last 4 years,” he said, adding: “Recurrent expenditure of N4 trillion is too high. There are government agencies set up that have no value. These agencies must be scrapped.”

Mao Ohuabunwa of Abia north senatorial district said Nigeria is “consolidating poverty” with such an appropriation bill.

“We need to really look at this budget. Instead of reducing, we should ‘jerk up’ the budget by 10 trillion. What can 2 trillion do when we have on going projects,” he said.

“We need to block leakages and ensure taxes are collected and put into good use in the economy such as the basic health fund which the senate president started.”

Senate President Bukola Saraki subsequently referred the budget to the committee on appropriation which will report back in two weeks, TheCable reports.

Source: TheCable

Brace Up for the Days Ahead Will be Rocky

Image Credit: tekedia.com

By Simon Obasi

Fellow Nigerians and the global business community,

Interesting & progressive days lie ahead in Nigeria’s business space. But I must say, brace up because the days ahead will be tough, very tough and quite tougher than the last few years. You may be wondering what the hell he is saying.

Simple! I was at the Deloitte Nigeria Economic Outlook event held last Thursday where two ministers (Budget & the Finance Minister) were present. Thanks Deloitte!

One positive takeaway was how much work Nigeria is doing in the ease of doing business. While we are yet to get there, a lot of progress has been made; targets top 100 in Global Ease of Doing Business Index.

But I was so worried listening to the two ministers, especially as it relates to the Budget and how to close the Funding gap. Put mildly, “the government is unable to figure out any other way to fund the budget, so be ready to come to their aid”. In other words, expect more taxes!!!

A little perspective of the 2018 Budget:

  • 2018 Expenditure Budget – N9.12 trillion (Actual spend – N7.54 trillion) 2018
  • Capital Budget – N2.87 trillion (Actual capex spend – N1.23 trillion)
  • The other balance from actual spend amounting to N6.31 trillion was spent on debt service & recurrent expenditure (Minister-these were largely covered)
  • 2018 Budgeted Revenue – N7.17 trillion (Actual revenue – N3,91 trillion or 54.5%)
  • 2018 Budgeted Fiscal Deficit – N1.95 trillion (Actual deficit – N3.26 trillion – 67% higher; in other words, additional N1.31 trillion was borrowed in excess of budget)
  • 2018 Budgeted Revenue from sale of Crude Oil N2.999 trillion (Actual crude revenue – N2.08 trillion – 69% of budget).
  • Ok, these are 2018 numbers.

In 2019, proposed budget will be slightly lower than 2018 budget by N294 billion.

Thus, proposed 2019 Expenditure is N8.827 trillion.

Proposed capex spend – N2.86 trillion (considering that only 43% performance was achieved in 2018, what do you expect in 2019?)

Proposed fiscal deficit – N2.45 trillion Did you notice that we borrowed to fund recurrent spend in 2018? And that we had abysmal performance on capex at 43% (in fact, as at 14 Dec 2018, only N820.57 billion was released for capex, in other words, about3 410 billion was released between 14 & 31 Dec 2018 for capex spend.)?

So we are at it again, I can’t foresee the time the government will start investing in critical infrastructure (thanks to the Executive Order No. 007).  Even the EO No 007 poses its own challenge. Despite missing Corporate Tax Revenue budget by N134 billion, and the commencement of this new Executive Order, the Government still budgets N150 billion more than actual collections in 2018.

Can you guess where this excess will come from? You and I will pay, simple.

Despite hitting only 69% of crude oil revenue, the proposed 2019 budget projects N3.69 trillion from sale of crude oil; N690 billion more than the 2018 budget and N1.6 trillion more than actual revenue from crude in 2018.

.. another threat… while we hope to produce 2.3 million bpd of crude, OPEC pegged Nigeria’s production at 1.69 million bpd (i.e., without going to town, the core driver of our budget revenue, the production quantity was cut by 36% by our OPEC masters. But the minister says we may have to re-discuss this with OPEC or shore up with concentrates (hope I got this term).

So with all these, what is the point? Our government has lost ideas on how to fund our budget, not just for this year, but for years to come. If you know how best to assist, please do suggest to the FG. But in the mean time, there is a quick fix, the only constant in the equation is you and I…

In brief, please prepare for more taxes, the quickest fix is to raise VAT.

The Honourable Minister of Finance mentioned the carbonated drinks as one area to generate more revenue… So Sugar taxes will come on-board. Taxes on Tobacco and the likes is a given. More taxes will come on the very rich; so if you have private jets & yachts, get ready. Are you a musician? More will come knocking from all angles. Sportsman? Sure, you are not forgotten. I envisage an update on PITAM in few years from now, not sure it will go beyond three years away.

But my biggest concern is that even if VAT revenue increases by 200%, we will be way short of our needs. Even if we raise Corporate tax income by 100% (including a 200% increase in VAT income, we will still be far away). You recall that Customs suggested a reduction of duty on imported cars from 70% to about 45%? Maybe that’s why the 2018 customs budgeted revenue is higher than 2019 by about N22 billion.

Expect the hammer to fall after the elections, true, we can’t run away. I advise that you start stress-testing your numbers against increase of VAT to 10% and see what impact that will have on your price. This will be happening despite our weak buying power due to loss of currency value.

In the midst of all these is the monetary policy issues. Prof Doyin Salami in his presentation said he can’t bet that Naira will get any stronger. In another fora, some experts say that Dollar will head towards N398 while some entities are planning with N440 to a Dollar.

In other words, all indicators show that Naira will lose value post-election, and may be a deliberate devaluation policy (check it, forex reserve, crude price, crude volume, etc)

Even of bigger concern to me at the event was the signal sent to the global community that the days ahead will be tough. But that’s the truth.

So, I implore you to start planning for the rocky days ahead. Hopefully, we will walk through this furnace without much damage.

Nigeria: A Cusory look at the Infrastructure Deficit and the Ease of Doing Business

Nigeria is African’s largest economy with about 190 million inhabitants. After years of positive growth, the economy slipped into recession in the first quarter of 2016 due largely to plummeting crude oil prices. Though the economy has recently come out of recession, massive unemployment, ailing public infrastructure, and corrupt public service, insecurity, widespread poverty, remain major challenges facing the country’s All Progressive Congress (APC) administration. With a disappointing revenue base due to a fall in crude oil proceeds, the administration has remained under intense pressure to make good its campaign promises. Currently, poor budget implementation (across the tiers of government) prevail and public debt is rising. As a result, the government is, increasingly looking to external sources to fund the huge infrastructure deficit as a way of promoting growth.

According to the National Integrated Infrastructure Master Plan (NIIMP) of 2015, the investment needed to meet current infrastructure deficit in Nigeria is put at about USD 3.0 trillion per annum over the next 30 years. The NIIMP estimates that this annual investment would have to rise from the current USD 9-10 billion (about two percent of GDP) to an average of USD 33.2 billion in the medium term (see Table 1 below for a description). The size of additional investment needed to make-up for the shortfall is expected to come from the private sector and Public-Private Partnerships (PPPs) (see Table 2 for a breakdown), therefore, the current administration is placing emphasis on improving the business environment in Nigeria.

Table 1 Infrastructure Concept and Estimated Cost

Source: NIIMP Development Team


Table 2 Private-Public Sector Split on Infrastructure Spending


Source: NIIMP Development Team

Recent efforts at improving the quality of the business environment in Nigeria have been largely concentrated on a select category of regulatory factors which provide opportunities for some quick wins. The major driver of the current administration’s efforts at better ease of doing business has been the Presidential Enabling Business Environment Council(PEBEC), led by Vice President since July 2016. Firstly, reforms to ensure reliable regulations and institutions has led to shorter businesses registration periods through online filing procedures for legally required documents, e-payment of taxes and the integration of initially separate business processes. Secondly, investor protection and dispute resolution mechanisms have made property transfer easier and more transparent through the removal of sworn affidavit for certified copies of the land ownership records. Specific and independent complaint mechanism have also been introduced by making statistics on land transfers publicly available. Thirdly, on reforms to improve project preparation and standardization of contracts now involve online publication of all relevant regulations, fee schedules and pre-application requirements regarding projects. These reforms and the provisions in the National Policy on PPPs (overseen by the National Council for Public-Private Partnerships) are to provide protection and guarantee for private investment in commercially viable projects. Due to these recent efforts, Nigeria is currently among the top 10 most reforming countries on the World Bank Ease of 2018 Doing Business ranking after moving 24 points up the ranking within a year.

In conclusion, the above described quick wins notwithstanding, the massive infrastructure deficit alongside the perennial monetary policy flaws, inconsistent exchange rate management, a less resilient banking sector and absent of supporting structural reforms, still plague the private sector of Nigeria.


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