Tuesday, 15 December 2015

LAGOS — 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.
FILE: Crowd and long queues of jerry cans at
Capital Oil filling station, along Lagos-Ibadan
Expressway.
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."

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