Key Takeaways from the Citizens Dialogue Session on Government Fiscal Policy Decisions in Response to the Fall in Oil Prices and the COVID-19 Pandemic
The Ministry of Finance, Budget and National Planning and the Department for Internal Development (DFID) held a citizen’s dialogue session (earlier today) on Nigeria’s response to the fall in oil prices and the COVID-19 pandemic.
The panel was led by the Minister for Finance, Budget and National Planning, Mrs. Zainab Ahamed, who was ably supported by Prince Clem Agba (Minister of State, Budget and National Planning), Mr. Ben Akabueze (DG Budget Office of the Federation), and Lade Jaiyeola (CEO, Nigeria Economic Summit Group).
A. Below are some takeaways from the representatives of government
1. The government expects GDP to contract by 3.5% YoY in 2020
2. Oil earnings are now projected to decline by 90.0% in 2020
3. Estimated net oil & gas revenue available for Federation Account Allocation Committee (FAAC) distribution is now forecasted 80.0% lower at N1.1 trillion (vs. 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.
- Oil production now projected at 1.7mbpd (vs. 2.18mbpd previously)
- Oil prices expected to average $20 per barrel (vs. budget benchmark of $57 per barrel)
- The average production cost of Nigerian crude has been revised downward to $28 per barrel from $33 per barrel (with implications for Petroleum Profit Tax
- A severe outbreak of COVID-19 in Nigeria could magnify the impact of low oil price and weaker domestic crude production
4. Customs revenue is now projected at N1.2 trillion in 2020 (vs. N1.5 trillion previously)
5. Amount accruable to VAT pool account now forecasted at N2.0 trillion in 2020 (vs. N2.1 trillion previously)
6. Amount accruable to federation account now projected at N3.9 trillion (vs. N8.6 trillion previously)
7. Projected federal government receipt from the federation account for 2020 is now put at N2.4 trillion (compared to N4.8 trillion previously)
8. 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)
9. 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)
10. Debt service pressure to be eased by significant moratoriums on new loans (IMF’s RFI of $3.4 billion comes with 3 years moratorium) and expected deferrals of current debt service obligations until macro conditions improve
11. As part of measures to alleviate the impact of COVID-19, the government has 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
12. Measures are underway to strengthen agricultural value-chain with a strategic focus on land acquisition, road networks, and funding. The government also plans to offtake agro-products when market conditions are unfavourable
13. Government is looking at funding supports for the aviation sector
14. The president is likely to decide on land border closures after the current health crisis. Negotiations with neighbouring countries have been smooth
15. Although similar challenges were faced in 2016, Nigeria currently has significantly lower fiscal buffers. In view of the challenges, the government has approved the integrated policy framework recommended by the CMC and adjustments to the 2020 budget
16. The budget office is finalizing a revised 2020-2022 Medium Term Expenditure Framework and Strategy Paper (MTEF/FSP) as well as an amendment to the 2020 Appropriation act
B. According to the Nigerian Economic Summit Group (NESG)
- Nigeria needs N10.1 trillion worth of interventions but current intervention capacity stands at N4.5 trillion
- The implied funding gap of N5.6 trillion is likely to be covered by
- Medium to long term domestic borrowing
- External borrowings (possibly from World Bank, IMF, IFC, AFDB)
- Quantitative easing
- Total announced stimulation (FG, CBN, et al) currently stands at N4.5 trillion or 3.1% of GDP (vs. 10.0% of GDP in South Africa)