The Minister of Finance, Zainab Ahmed, on Thursday said that Nigeria’s economy will further suffer from the combined effects brought about by COVID-19, which have had a negative impact.
She said this while giving an overview of the economy at the opening of a five-day interactive session to discuss the 2021-2023 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) organised by the House of Representatives Committees on Finance, Appropriation, National Planning & Economic Development and Aids, Loans and Debt Management.
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Mrs Ahmed, who was represented by the Minister of State for Finance, Clem Agba, said the COVID-19 pandemic forced oil prices down leading to huge loss of revenue to the country while causing havoc in other economic sectors.
“The Nigerian economy faced serious challenges in H1 with the macroeconomic environment significantly disrupted by the COVID-19 pandemic. Crude oil prices declined sharply in the world market with Bonny Light Crude Oil price dropping from a peak of US$72.2 pb on January 7,2020 to below US$20 pb in April.
“In effect, the US$57 crude oil price benchmark on which the 2020 budget was based became unsustainable. Another key development in the International Crude Oil market is the massive output cut by OPEC and its allies (OPEC+) to stabilise the world oil market, with Nigeria contributing about 300,000bpd of production cuts,” she said.
The minister said the overall impact caused about 65 percent decline in projected government revenue from the oil and gas sector for 2020, with adverse consequences on foreign exchange inflows into the economy.
She further stated that Nigeria is still exposed to risk in the global capital market, which would put more pressure on the foreign exchange market as foreign portfolio investors go out of Nigerian market.
Daily Trust reports that prices of commodities and services have skyrocketed due to high exchange rate with the official rate now N379/US$ while at the parallel market it is going for N485/ US $.
A similar situation occurred in 2016 when the naira lost value to the dollar at the parallel market, trading at N500/$1 at some point.
According to the minister, Nigeria’s second quarter Gross Domestic Product (GDP) growth has a negative outlook, warning that unless the country achieves a strong third quarter economic performance in 2020, the economy may lapse into a second recession in four years with more negative consequences on the economy.
“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/US$1, and more recently to N379/US$.
“The disruptions in global trade and logistics would negatively affect Customs duty collections in 2020. The COVID-19 containment measures, though necessary, have inhibited domestic economic activities with consequential negative impact on taxation and other government revenues.
“Consequently, the projections for Customs duty, Stamp Duty, Value Added Tax revenues were reviewed downwards in the revised 2020 budget,” she said.
According to the minister, since 2016, Customs revenue has performed close to target and exceeded target in 2019, adding that, there has also been improvement in CIT and VAT remittances and with the new VAT rate of 7.5%, the government was expecting significant improvement.
The minister further noted that actual revenue performance averaged 61.4% in the last five years, adding that, some of the reforms brought in were yielding positive results with improvements between 2018 and 2019.
On the performance of the 2020 budget, the minister said all the parameters were positive between January and June in relation to the recently revised targets.
She said oil price benchmark is $28 in the revised 2020 budget as against the actual of $42 for Jan-June while oil production stood at 1.80 million BPD as against the 1.9 million bpd actual between January and June.
She added that the exchange rate in the revised budget stood at N360 to the Dollar, which corresponds with the N360 to the Dollar between January and June.
The minister however disclosed that inflation rose to 14.13% in the revised budget against the 12.56% between January and June while GDP growth rate also rose from 1.87% between January and June to 4.42% in the revised 2020 budget.
“On the expenditure side, N9.97 trillion was appropriated (excluding GOEs and project-tied loans) while N4.45 trillion (representing 89.3% of the prorata N4.99 trillion) was expended.
‘‘Of the expenditure, N1.57 trillion was for debt service and N1.61 trillion for personnel cost including Pensions.
“As at the end of June 2020, only N444.75 billion had been released for capital expenditure (largely due to the budget revision exercise),” she added.
On 2021 to 2023 MTEF projections, the minister disclosed that oil GDP is expected to contract by 12.96%, which will result in slower growth in non-oil GDP by -3.6% year on year.
“Based on this, real GDP is expected to decline by 4.2% in 2020,” the minister said.
She, however, disclosed that nominal GDP is expected to increase from N130.836 billion in 2020 to N132.125 billion in 2021 and then up to N138.415 billion 2023.
“Similarly, consumption expenditure is projected to stay flat at N118.735 billion in 2023 and N118.468 billion in 2021 and grow to N124.358 billion by 2023, reflecting a gradual steadiness in the recovery.
“Inflation however 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 food distribution,” the minister noted.
Managing the fiscal crisis
According to the minister, the government is putting in place measures to improve revenue generation as well as ensure prudence in the utilisation of available resources and emphasis on getting value for money.
“The goal of fiscal interventions will be to keep 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.
“Improving the tax administration framework to optimise government revenue has been a major thrust of the administration’s Strategic Revenue Growth Initiative (SRGI).
“We have included in the 2021-23 MTEF/FSP, a Tax Expenditure Statement (TES) overview which seeks to dimension the coat of tax waivers/concessions and evaluate their policy effectiveness.
“To enhance independent revenue generation and collection, the government will aim to optimise the potential, operational and collection efficiency of GOEs with a view to generating significantly higher revenues required to fund the FGN budget,” the minister added.
Experts proffer solution
Experts in macro economy also confirmed a looming downtime for the Nigerian economy. President of Nigeria Employers’ Consultative Association (NECA), Mr Taiwo Adeniyi, said the COVID-19 pandemic had compounded the nation’s economic woes.
He said the pandemic has further underscored the urgent need to diversify the nation’s sources of foreign exchange earnings instead of over-depending on the oil sector.
Similarly, Managing Director, Cowry Assets Management Ltd, Mr. Johnson Chukwu, said there will definitely be an increase in unemployment level.
A former Director General of the Abuja Chamber of Commerce and Industry, Chijioke Ekechukwu, said the minister’s projections on the economic expectations were apt and realistic, though not different from other economic analysts’ projections.
“GDP is obviously going to contract as all sectors have been adversely affected by the scourge and with very abysmal performances. Revenue base of the country, which is about 90% derivable from oil sales, has been eroded due to low demand, low capacity utilisation and low oil price,” he said.
Dr. Iorwuese Tyopev, an analyst at Falvey Consulting said: “The future of the economy is not palatable but human life isn’t all rosy. But I see a lot of hope.
“This is because beyond the FG, the CBN is doing a lot to stimulate economic growth and employment. Look at the AGMEIS loan scheme, when it started, a lot of people thought it was a joke, just like when they brought out the N50bn COVID-19 loan for SMEs and households. But a lot of people have accessed the loans and changed their fortunes and created jobs.”
He said all the stimulus packages will impact employment because some beneficiaries are getting up to N10m from the various intervention facilities.
“For me, being a private sector person who interacts with a lot of small and medium scale businesses, I see hope. It is not all gloom.”
Uche Uwaleke, a professor of finance and capital market, said to mitigate the negative impact of COVID-19, the government and the CBN should ensure that the interventions are increased and well-targeted.
“Any increase should particularly be channelled to the agriculture sector to ensure food security, bring down food inflation and create employment opportunities. This will go a long way in boosting the sector’s contribution to GDP.”
To be able to do this, Uwaleke said the government should seek debt relief for Nigeria. “This has become necessary considering the huge amount the country is spending on debt servicing,” he noted.
