Tuesday,May 05, 2020 / 8:14 PM / By CardinalStone Research /Header Image Credit: @FinMinNigeria
Key Takeaways from theCitizens Dialogue Session on Government Fiscal Policy Decisions in Response tothe Fall in Oil Prices and the COVID-19 Pandemic
The Ministry of Finance, Budget and National Planningand the Department for Internal Development (DFID) held a citizen's dialoguesession (earlier today) on Nigeria's response to the fall in oil prices and theCOVID-19 pandemic. The panel was led by the Minister for Finance, Budget andNational Planning, Mrs. Zainab Ahamed, who was ably supported by Prince ClemAgba (Minister of State, Budget and National Planning), Mr. Ben Akabueze (DGBudget Office of the Federation), and Lade Jaiyeola (CEO, Nigeria EconomicSummit Group).
A. Below are some takeaways from the representatives of government
1. Government expects GDP to contract by3.5% YoY in 2020
2. Oil earnings isnow projected to decline by 90.0% in 2020
3. Estimated net oil & gas revenueavailable for Federation Account Allocation Committee (FAAC) distribution isnow forecasted 80.0% lower at N1.1 trillion (vs. N5.5 trillion previously),despite a N649 billion reduction in allowable fiscal deductions by NNPC forfederally funded projects/expenditures. Specifically, projected PMSunder-recovery has been reduced from N457 billion to zero
- Oil production now projected at 1.7mbpd (vs. 2.18mbpdpreviously)
- Oil prices expected to average $20 per barrel (vs. budgetbenchmark of $57 per barrel)
- Average production cost of Nigerian crude has been reviseddownward to $28 per barrel from $33 per barrel (with implications for PetroleumProfit Tax)
- A severe outbreak of COVID-19 in Nigeria could magnify theimpact of low oil price and weaker domestic crude production
4. Customs revenue is now projected atN1.2 trillion in 2020 (vs. N1.5 trillion previously)
5. Amount accruable to VAT pool accountnow forecasted at N2.0 trillion in 2020 (vs. N2.1 trillion previously)
6. Amount accruable to federation accountnow projected at N3.9 trillion (vs. N8.6 trillion previously)
7. Projected federal government receiptfrom federation account for 2020 is now put at N2.4 trillion (compared to N4.8trillion previously)
8. States and local governments are nowlikely to obtain N2.1 trillion and N1.5 trillion, apiece, from FAAC (comparedto N3.3 trillion and N2.5 trillion, respectively, in previous estimates)
9. Projected N5.6 trillion budget deficitto be financed through privatization proceeds (N126 billion), drawdowns fromFGN Special Accounts (c.N260 billion), bilateral/multilateral drawdowns (N387billion), and new borrowings (N4.6 trillion)
10. Debt service pressure to be eased bysignificant moratoriums on new loans (IMF's RFI of $3.4 billion comes with 3years moratorium) and expected deferrals of current debt service obligationsuntil macro conditions improve
11. As part of measures to alleviate theimpact of COVID-19, the government has set up an Economic SustainabilityCommittee to, among others, assess systemic vulnerabilities and developprograms that would make the expected recession short-lived and ensuresustainable long-term growth
12. Measuresare underway to strengthen agricultural value-chain with strategic focus onland acquisition, road networks, and funding. Government also plans to offtakeagro-products when market conditions are unfavourable
13. Government is looking at fundingsupports for the aviation sector
14. The president is likely to decide onland border closures after the current health crisis. Negotiations withneighboring countries have been smooth
15. Although similar challenges were facedin 2016, Nigeria currently has significantly lower fiscal buffers. In view ofthe challenges, government has approved the integrated policy frameworkrecommended by the CMC and adjustments to the 2020 budget
16. The budget office is finalizing a revised 2020-2022Medium Term Expenditure Framework and Strategy Paper (MTEF/FSP) as well as anamendment to the 2020 Appropriation act
B. According to Nigerian Economic Summit Group (NESG)
- Nigeria needs N10.1 trillion worth of interventions but current intervention capacitystands at N4.5 trillion
- The implied funding gap of N5.6 trillion is likely to be covered by
1. Medium to long term domestic borrowing
2. External borrowings (possibly from World Bank, IMF, IFC, AFDB)
3. Quantitative easing
- Total announced stimulation (FG, CBN, e’tal) currently stands at N4.5 trillionor 3.1% of GDP (vs. 10.0% of GDP in South Africa)
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