FG spends N1.57trn on debt servicing, N1.61trn on personnel, pension
•Releases N1trn for capital projects •Proposes $40 oil benchmark for 2021 fiscal year •As Zainab warns of possible recession
THE Federal Government on Thursday disclosed that it had expended N1.57 trillion on debt servicing and N1.61 trillion on personnel and pensions in the current year.
The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, made the statement on debt servicing and others expenses during the presentation of the 2021-2023 Medium-term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) to the joint House of Representatives on Finance, Aids, Loans and Debt Management and appropriations and observed that capital expenditure increased to about N1 trillion by July 2020 against N444.75 billion released as of June 2020 (largely due to budget revision).
She explained that the N9.97 trillion appropriated for 2020 excludes government-owned enterprises project-tied loans, just as he observed that the key parameters, as well as other macroeconomic projections during the medium-term revenue and expenditure framework, had been revised by the government in line with the emerging realities.
She maintained that: “oil GDP growth rate has a strong positive correlation with real GDP growth in Nigeria. consequently, changes in the underlying drivers of oil GDP will significantly affect real GDP performance.”
While giving update on the 2020 budget implementation from January to June 2020, she explained that “As of the end of June 2020 FGN’s retained revenue was N1.81 trillion, 68 per cent of prorating target; Federal Government’s share of oil revenues was N859.1 billion (representing 169.48 per cent performance, over and above the prorated sum in the revised 2020 budget) while non-oil tax revenues totalled N581.23 billion (72 per cent of revised target).
In addition, the Companies Income Tax (CIT) and Value Added Tax (VAT) collections were N301.06 billion and N854 billion (representing 73 per cent and 60 per cent respectively of the pro rata revised targets for the period); Nigeria Customs Service collections was N184.36 billion (82 per cent of revised target) while other revenues amounted to N372.04 billion, a lowly 28 per cent of the target.
The Minister, however, observed that the NLNG dividends, recoveries and stamp duty collected during the period had yet to be booked into the fiscal accounts. The key assumptions for 2021 fiscal year as presented by the Minister include $40 oil benchmark, 1.8 million barrels per day oil production, $360 exchange rate, 11.95 inflation rate and three per cent GDP growth rate.
Mrs Ahmed who was represented by the Minister of State, Prince Clement Agba, however, affirmed that the Nigerian economy faced serious challenges in the first half of 2020 with the microeconomic environment significantly disrupted by the Covid-19 pandemic.
She explained that over the past five years the actual revenue performance averaged 61.4 per cent, adding that some government reforms were yielding positive results, with significant improvements between 2018 and 2019, saying “we believe we can do more to improve revenues, especially remittances from government-owned enterprises, possibly up to N1 trillion per annum.”
In the bid to achieve improved revenue, the Minister solicited for the support of the National Assembly by ensuring coordinated oversight functions. According to her, although Nigeria‘s total production capacity stands at about 2.5 mbpd, current crude production stands at about 1.4mbpd in compliance with the OPEC production quota), and an additional 300,000bpd of condensates, totalling about 1.7mbpd.
While speaking on the sharp decline in the crude oil prices, she explained that the “mild market with Bonny Light crude oil price dropping from a peak of $72 per barrel on January 7, 2020 to below $20 in April 2020 as a result of which the $57 crude oil price benchmark on which the 2020 budget was based became unsustainable”.
She said further that massive output cut by OPEC and its allies to stabilize the world oil market was another key development in the international crude oil market with Nigeria contributing about 300,000 bpd of production cuts.
The Minister explained that the impact of these developments is about 65 per cent decline in projected net 2020 government revenues from the oil and gas sector, with adverse consequences for foreign exchange inflows into the economy.
She said further that Nigeria is currently exposed to spikes in risk aversion in the global capital markets, which will put further pressure on the foreign exchange market as foreign portfolio investors exit the Nigerian market, adding that as a result of the decline in revenue, Nigeria‘s Q2 GDP growth is in all likelihood negative, and unless we achieve a very strong Q3 2020 economic performance, the Nigerian economy is likely to lapse into the second recession in four years, with significant adverse consequences.
He stressed that 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/$1, and more recently to N379/$. He maintained that the disruptions in global trade and logistics would negatively affect custom duty collections in 2020, while the COVID-19 containment measures have inhibited domestic economic activities, with a consequential negative impact on taxation and other government revenues.
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