COVID-19: FG walks tight rope, plan to cut oil price benchmark to $20 per barrel

• Estimated oil revenue to drop to N1.2 trillion from N5.47 trillion
• Report shows FG spent only N372B on capital in 9 months in 2019
• Size may drop to below N5 trillion
• ₦3.168 Trillion in recurrent, same period
• Debt Service – N₦2.124trillion

The Federal Government appears to be walking a real tight rope as she moves further to cut down her spending plan for fiscal 2020 to an all low time around three or four trillion up from more than the N10 trillion size that was originally articulated pre- COVID-19 era in the year 2019.

If the indication by the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed and the Director-General of the Budget Office of the Federation. Mr Ben Akabueze are to be taken seriously, then the country is in for a heavy hell of a time. This is because of the first three quarters of last year alone. Recurrent expenditure gutted a whopping N3.168 trillion, while capital votes got the sum of N372 billion.

The implication of a total revenue projection of something around or N5 trillion is that there may be a complete shut down in capital projects while the Government will still be struggling to pay salaries and other allowances as such an amount cannot support the country’s large recurrent expenditure.

Speaking at a Citizens Discourse yesterday on the impact of the COVID 19 on the year 2020 Budget via virtual streaming, the Finance Minister, said in the Budget which is being reworked, the Budget benchmark price is further being pruned down from $30 to $20 with a total oil revenue expected to fall from N5.4 trillion to a mere N1.2 trillion.

Mr Ahamed said: “ “Nigeria is facing the twin challenges of the COVID-19 pandemic as well as the crash of the crude oil price. For Nigeria, it’s a double whammy…This has set us back significantly.”We’ve had to scale down on the budget by reviewing our revenue projections to conform to the current realities. [Was at $57 per barrel] Now we are actually in the process of making an amendment bringing down that revenue key indicator to $20 per barrel. Globally the crude oil market is very slow and we are not able to sell as much crude as we used to do before.”

Also at the same occasion, the Minister of State, Budget and National Planning, Prince Clement Agba: said: It is no longer a secret that government revenues have collapsed.”

And for the Director-General – Budget Office of the Federation, Mr Ben Akabueze: “Even though oil represents a little under 10% of our GDP, it accounts for about 50% of government revenues and over 90% of our export earnings…Our economy, even the non-oil sector, is very significantly dependent on oil exchange because it’s heavily import dependent. Any time there’s a downturn in oil, which then impacts our foreign exchange earnings, there is a contagion effect on the other sectors.”

“In response to the crisis, there’s a need for the government to spend a lot more … When faced with an imminent recession, what you do is try to spend your way out of it … We are facing significant fiscal risks. Our economy is highly vulnerable to this crisis, both as a result of the decline in the oil price and the spikes in risk aversion in the global capital market which is part of what is putting our currency under pressure.”

“Our projected oil revenue has declined by over 80%…We have now had to revise our budget down to $20 per barrel…We have made significant gains in trying to reduce our production costs in response to this crisis. Our estimated net oil and gas revenues are down now from N5.47 trillion to N1.12 trillion for the Federation and this is despite getting rid of the massive fuel subsidies paid by NNPC,” he further lamented.

Meanwhile, a Third Quarter Budget Implementation Report of 2019 just released and obtained by the Guardian has shown that though revenue shortages has since been afflicting Nigeria even as late as last year, the Government gave preference to recurrent and debt servicing spendings over capital which should create more wealth and benefit every Nigerian whether working for Government or not.

According to the Report: “Actual expenditure in the first three quarters of 2019 stood at ₦5,946.02 billion, indicating a decrease of ₦741.70 billion (or 11.09 percent) below the prorate budget estimate. It was, however, ₦616.91 billion (or 11.58 percent) higher than the actual expenditure of ₦5,329.11 billion recorded in the corresponding period of 2018. A total of ₦3,168.68 billion was spent as non- debt recurrent expenditure in the period implying an increase of ₦119.22 billion (or 3.91 percent) from the prorate budget estimate of ₦3,049.46 billion. It was also above the non-debt recurrent expenditure of ₦2,242.08 billion reported in the first three quarters of 2018 by ₦926.60 billion (or 41.33 percent). Statutory Transfer was also allocated a total sum of ₦346.97 billion while ₦372.04 billion was released for capital projects in the review period.

It continued: “ Total Debt Services in the first three quarters of 2019 stood at ₦2,124.95 billion indicating an increase of ₦434.44 billion (or 25.70 percent) above the ₦1,690.51 billion projected for the period. The sum of ₦1,406.99 billion was used for domestic debt service while ₦315.34 billion was spent for external debt service during the period under review. The amount used for domestic debt service indicates an increase of ₦124.32 billion (or 9.69 percent) above the budget estimate for the period.

“ The revenue and expenditure outturn of the Federal Government resulted in a fiscal deficit of ₦3,005.98 billion in the first three quarters of 2019. This was ₦1,567.13 billion (108.91 percent) above the projected deficit of ₦1,438.86 billion for the period. was also above the fiscal deficit of ₦2,514.80 billion recorded in the same period of 2018. The deficit was financed through domestic borrowing of ₦670.0 billion, thereby reflecting a negative net financing of ₦2,335.98 billion in the period under review.