By Tony Akowe and Victor Oluwasegun, Abuja The Federal Government said on Thursday that unless the country achieves a strong third q...
By Tony Akowe and
Victor Oluwasegun, Abuja
The Federal Government said on Thursday that unless the
country achieves a strong third quarter economic performance in 2020, the
country stands the risk of going into a second recession with significant
adverse consequences.
The government also warns that Nigeria faces significant
medium-term fiscal challenges, especially with respect to its revenues, which if
not immediately addressed could snowball into a debt sustainability crisis.
Minister of state for Finance, Budget and National Planning,
Clement Agba disclosed this while speaking at an interactive session with the
House of Representatives joint committees on Finance, Appropriation, Budget and
Economic Development as well as Loans, Debt Management.
Agba who represented the Minister for Finance, Budget and
National Planning, Zainab Ahmed at the event said Nigeria is currently exposed
to spikes in risk aversion in the global capital markets, which will put
further pressure on the foreign exchange market as foreign portfolio investors
exit the Nigerian market.
Agba admitted that the Nigerian economy faced serious
challenges in the first half of 2020 with the microeconomic environment
significantly disrupted by the COVID-19 pandemic.
According to him, crude all prices declined sharply in the
“mild market with Bonny Light crude oil price dropping from a peak of US$72 pb
on January 7, 2020 to below US$20 in April, 2020 as a result of which the US$57
crude oil price benchmark on which the 2020 budget was based became
unsustainable.
He said further that massive output cut by OPEC and its
allies to stabilize the world oil market was another key development in the
international crude oil market with Nigeria contributing about 300,000 bpd of
production cuts.
The Minister explained that the impact of these developments
is about 65% decline in projected net 2020 government revenues from the oil and
gas sector, with adverse consequences for foreign exchange inflows into the
economy.
He said further that Nigeria is currently exposed to spikes
in risk aversion in the global capital markets, which will put further pressure
on the foreign exchange market as foreign portfolio investors exit the Nigerian
market.
He stressed that as a result of the decline in revenue,
Nigeria‘s Q2 GDP growth is in all likelihood negative, and unless we achieve a
very strong Q3 2020 economic performance, the Nigerian economy is likely to
lapse into a second recession in four year, with significant adverse
consequences.
He stressed that in response to the developments affecting
the supply of foreign exchange to the economy, the Central Bank of Nigeria
(CBN) adjusted the official exchange rate to N360/USD1, and more recently to
N379/USD.
He maintained that the disruptions in global trade and
logistics would negatively affect custom duty collections in 2020, while the
COVID-19 containment measures have inhibited domestic economic activities, with
consequential negative impact on taxation and other government revenues.
As a result of this, he said, the projections for Customs
duty, Stamp Duty, Value Added Tax, and
Company Income Tax revenues were recently reviewed downwards
in the revised 2020 budget, adding that in spite of the challenges, Customs
revenue has generally performed close to target over the last few years,
exceeding target in 2019 as well as some level of improvement in Company Income
Tax and VAT remittances.
He said further that over the past 5 years, actual revenue
performance averaged 61.4%, adding that some government reforms are yielding
positive results, with significant improvements between 2018 & 2019, saying
“we believe we can do more to improve revenues, especially remittances from
Government Owned Enterprises, possibly up to N1 trillion p.a.
He said further that the key parameters as well as other
macroeconomic projections during the medium term revenue and expenditure
framework have been revised by the government in line with the emergent
realities.
He maintained that “oil GDP growth rate has a strong
positive correlation with real GDP growth in Nigeria. Consequently, changes in
the underlying drivers of oil GDP will significantly affect real GDP performance.”
He said further that although Nigeria‘s total production
capacity stands at about 2.5 mbpd, current crude production stands at about
1.4mbpd in compliance with the OPEC production quota), and an additional
300,000bpd of condensates, totaling about 1.7mbpd.
He said further that the World Bank has projected that crude
oil prices will rise gradually from an average of US$42 pb in 2021 to $44.5 pb
in 2022, and US$47 pb in 2023, while EIA expects Brent crude oil prices to
average $41 pb during the second half of 2020 and $50 pb during 2021, reaching
$53 pb by the end of 2021.
Agba said further that with oil price projected to remain
low and volatile in 2020, and Nigeria’s compliance with 0PEC cuts by reducing
base production to between 1.412 mbpd and 1.579 mbpd from June to end of the
year, growth in Oil GDP is expected to decline in 2020.
The Minister said that the nominal GDP is expected to
increase from N130,836.1 billion in 2020 to N132.1254 billion in 2021 and then
up to N138,415.8 billion in 2023. Similarly, consumption expenditure ls
projected to stay flat at N118, 735.2 billion in 2020 and N118, 468 billion in
2021 and grew to N124, 35815 billion by 2023, reflecting a gradual steadiness in
the recovery.
He stressed that inflation is expected to remain above
single digit over the medium term, given the structural issues impacting on
cost of doing business including high cost of and distribution.
He explained further that fiscal measures are being
instituted to improve government revenue and entrench a regime of prudence with
emphasis on achieving value for money aimed at keeping the economy active
through carefully calibrated regulatory/policy measures designed to boost
domestic value addition, de—risk the enterprise environment, attract external
investment and sources of funding, among others
He stressed that improving the tax administration framework
to optimize government revenue has been a major thrust of the Administration’s
Strategic Revenue Growth Initiative (SRGI), saying “we have included in the
2021 – 23 MTEF/FSP, a Tax Expenditure Statement (TES) overview which seeks to
dimension the cost of tax waivers/concessions, and evaluate their policy
effectiveness.
“To enhance Independent Revenue generation and collection,
Government will aim to optimize the potentials operational and collection
efficiency of GOEs with a view to generating significantly higher revenues
required to fund the FGN budget.
“Current revenue performance of GOEs will be addressed
through the effective implementation of the enhanced Performance Management
Framework. The key elements of the reform initiative include Performance
Contracts for Chief Executive Officers (CEOs) and key management staff, which
will set financial indicators and targets for each GOE
“The cost-to-revenue ratio of GOEs has by a Presidential
directive been limited to a maximum of 60%-70% while regular monitoring and
reporting of revenue and expenditure performance of GOEs will be undertaken by
both the Budget Office of the Federation and the Office of the Accountant
General of the Federation.
He however said that the Finance Bill 2020, which will
accompany the 2021 Budget Proposal, will contain measures to advance the SRGI,
saying “we shall also work closely with the National Assembly to amend relevant
laws that need to be amended to help with the SRGL.
”We have revised the 2020 FGN budget and will accelerate
implementation to maintain budget credibility, enhance GDP growth and promote
social inclusion. The draft 2021 — 2023 MTEF/FSP has been prepared against the
backdrop of a global recession and heightened global economic uncertainty.
“The draft 2021-2023 Medium Term Fiscal Framework shows that
there are continuing global challenges due to the COVlD-19 pandemic. The
medium-term outlook for Nigeria suggests that fiscal risks are somewhat
elevated, largely due to Covid-19 related disruptions which have exacerbated
structural weaknesses in the economy.
“In furtherance of our objective of greater
comprehensiveness and transparency in the budget process, the FGN 2021 Budget
will reflect the revenues & expenditures of all [about 60) significant GOEs
(excl. NNPC), not just 10 as in the 2020 budget.
“Weaker-than-expected economic performance threatens our
ambitious revenue growth targets, as seen in the 2020 revised budget and the
updated medium-term projections. Achieving fiscal sustainability and macro-fiscal
objectives of government will require bold, decisive and urgent action.
Government is determined to act as may be required.”
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