Posted on: 10:25 Tue, 15 Dec 2015



Following increased pressure on
revenue and the expenditure profile,
the Federal Government has finally
yielded to domestic and international
pressures to remove fuel subsidy.

This is coming as crude oil prices hit
a seven-year low with global
reference crude, West Texas
Intermediate and Brent trading
yesterday at $34.7 and $36.7 per
barrel respectively, effectively
disrupting Nigeria’s $38 per barrel
benchmark for 2016 budget.

The crash has resulted into about
N1.45 trillion shortfall in the value
of the projected oil output in the
international market based on
production target increased in the
2016 plan to 2.2 million barrel per
day (mbpd), up from actual 1.9
mbpd in 2015.

On official exchange rate of N198/ $1
upon which the revenue projection
was based, the value of the total
budgeted oil output is $35.14 billion
or N6.95 trillion but with the latest
price development, the output would
now yield $27.8 billion or N5.5
trillion.

The latest price shock is coming less
than a week after the Federal
Executive Council, FEC, approved the
2016 Medium Term Expenditure
Framework, MTEF, which outlined
government’s revenue as well as a
deficit budget to be funded largely
by the oil income.The 2016 budget is
derived from the MTEF which is a
three-year fiscal plan.

FG to introduce tougher economic
measures

Also, the oil price crash was coming
at the backdrop of a warning from
ministers in charge of the economic
ministries and chief executives of
federal parastatals in the economy
sector that Nigerians should prepare
ahead for what it called more austere
conditions in view of the strict
economic policies being put in place
by the President Muhammadu Buhari
administration.

The federal executives, who gave the
warnings when they appeared
before the joint committees of the
National Assembly on Finance to
defend the 2016, 2017 and 2018
Medium Term Expenditure
Framework and Fiscal Strategy
Paper, MTEF & FSP, documents
presented to the National Assembly
by President Muhammadu Buhari
are Ministers for Budget and
National Planning, Udoma Udo
Udoma; Finance, Mrs Kemi Adeosun
and State for Petroleum Resource,Ibe
Kachikwu; Governor, Central Bank of
Nigeria, Godwin Emefiele and
Executive Chairman, Federal Inland
Revenue Service, FIRS, Babatunde
Fowler.

To make the warning real, they
disclosed that Federal Government
would move fuel price from N87 to
N97 per litre in 2016 while removing
fuel subsidy, lamenting that excess of
N1 trillion has been paid for fuel
subsidy in 2015 alone.

2016 budget deficit to increase
With the latest crude oil price
development, 2016 budget deficit
would increase to about N2.7 trillion
from N2.22 trillion, assuming
government is able to meet its target
of 2.2 mbpd, otherwise the deficit
would be much higher.

Also, the development, according to
economy analysts, would put more
pressure on the external reserves
and the exchange rate while forcing
the government to resort to more
borrowing, thereby increasing both
its deficit-to-GDP ratio and debt-to-
GDP ratio.

In the 2016 fiscal plan, deficit/GDP
ratio was more than doubled to 2.2
per cent, from actual one per cent as
at September 2015.

According to the 2016 fiscal plan,
Federal Government would only have
a marginally increased contribution
from value added tax, VAT, at N67.7
billion in 2016, from N67.5 billion in
2015 while additional inflow of N350
billion is expected to come from
misappropriated funds recoveries.

The deficit will necessitate
borrowings worth N1.8 trillion of
which domestic borrowing is fixed at
N1.2 trillion while foreign
borrowing is about N600 billion. If
the oil price remains gloomy in the
coming year borrowings would
increase or the government would be
forced to effect a further cut on
expenditure.

Already, recurrent expenditure is
projected to fall from 84 per cent in
2015 to 70 per cent in 2016 while
capital expenditure is expected to
increase from 16 per cent in 2015 to
30 per cent in 2016.

Harder times ahead, FG alerts Nigerians
The Federal Government had
yesterday alerted Nigerians to
prepare ahead for the tough
economic conditions and policy
responses it intends to roll out from
next year just as it vowed to strictly
monitor expenditure of all
Ministries, Department and
Agencies, MDAs to avoid wastes.

The Federal Government has also
planned to reduce the personnel cost
from N1.8 trillion to N100 billion as
part of moves to reduce expenditure
and save cost.

According to the minister, who
appeared at the National Assembly,
yesterday, attention would be given
to Internally Generated Revenue,
IGR, to fund the N6.1 trillion 2016
budget, adding that in 2016, it would
remove fuel subsidy and reverse the
earlier N10 per litre reduction
effected by ex-President Goodluck
Jonathan this year.

Speaking at the meeting, Udo Udoma,
who noted that it was important that
substantial reductions were made on
the spending pattern if the expected
change must come in, said: “In
preparing the MTEF, we seek a
dramatic shift from spending on
recurrent to spending on capital
aspect of the budget. It is going to be
tighter for everybody. All non
essential expenditure would be cut
out. We will reduce the overheads by
seven per cent.

“We are beginning a journey of
change and change has to start with
the clarity of purpose of where we
are going.”

On the issue of N500 billion for
Social Welfare Programme, Udoma
said: “As at the time we were
preparing the MTEF, we didn’t have
the number and we didn’t want to
put in anything that we are not 100
percent sure of. We are still going to
relate with relevant agencies on the
issue. We are making this
arrangement because the NNPC and
other stakeholders had advised
against subsidy in 2016 although
consultations are still ongoing in this
regard.”

On sources of funding for the N6.1
trillion 2016 budget, the Budget and
National Planning Minister, who
disclosed that priority would be
given to Internally Generated
Revenue ,IGR, said: “We will also
look at the accounts of agencies and
sweep those surpluses that might not
be on essential things that we want
to focus on.”

Udoma, however, told the lawmakers
that “ultimately we must borrow
N1.8 trillion to fund this budget
apart from all those adjustments we
are trying to make.”

Strict monitoring of all MDAs

Also, Finance Minister, Kemi
Adeosun, who told the joint
committee of the National Assembly
that expenditure of all MDAs would
be strictly monitored to avoid
wastes, said government would take
steps to ensure that whatever money
was being taken from the account of
any MDA was done electronically.

The Finance minister, who noted that
measures had been put in place to
compel revenue generating MDAs to
remit all funds they generated to the
treasury, said: “The era when an
agency generates money and spends
99 per cent of it is over.”

On strategy to reduce costs of
governance, the minister said: “The
country paid N1.8 trillion in 2015 as
personnel cost but there is a strategy
in place in the 2016 budget to reduce
it by N100 billion. For instance, we
are already working with banks so
that we can go cashless, so that we
could give debit cards to MDAs to
procure items.

N1trn spent on subsidy in 2015
Also speaking, Minister of State for
Petroleum Resources, Dr Ibe
Kachikwu, who disclosed that with
NNPC inclusive, Excess of N1 trillion
was paid for fuel subsidy in 2015,
with plans to move fuel price from
N87 to N97 per litre in 2016 as well
as total removal of fuel subsidy next
year.

On the issue of daily oil production
target, Kachikwu said, “From August
this year, we have been exceeding
two million daily production through
stringent monitoring of our
production by getting quick fixes to
instances of pipelines breaking. The
internal projection for our system
next year is in excess of 2.4 million
which is coming from enhanced and
increased production from NPDC
field.

“A lot of efficiency had really been
applied in this regard. NPDC will for
instance be producing 300, 000
barrels on its own while other
partners would process at least 2.2m
barrels. We would address issues of
security and other impediments to
the realization of our target. We are
looking at a collective and holistic
handling of security issues between
the NNPC and the oil majors with us
taking the lead.

On the oil price benchmark of $38,
he said: “The projection at OPEC was
along the line of the fact that once
we do not interfere in term of
production cost will lead to a
southward movement in terms of
pricing. We expect an increase as
from early January when we expect
it to go up by $45 to $50 per barrel
in spite of OPEC projection. We
expect it to hit $70 per barrel in
2017.”