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.”
Tuesday, December 15, 2015
Nigeria: Fuel subsidy to go next year, FG to sell petrol at N97 per litre
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