Factors such as the tense political atmosphere, fuel subsidy regime and oil price will distort economic projections in 2019
Past experiences show that the capital vote receives poor implementation. As at December 14, only N820.57 billion had been released out of the N2.87 trillion earmarked for 2018. Yet, debt service in 2019 will be larger than capital expenditure, taking 24.24 per cent of the overall plan.
Lead Director of the Centre for Social Justice (CSJ), Eze Onyekpere, said the government was yet to resolve the contradictions in its
“Recurrent non-debt expenditure got N4.04 trillion as against N3.51 trillion in 2018. This is a 15 per cent increase between that of 2018 and 2019, even with a lesser budget. In 2017, the approved recurrent non-debt expenditure was N2.99 trillion. This increment cannot be the sign of a system that is taking steps to remove waste and inefficiencies,” he said.
With a projection of $1 billion (about N305 billion at official rate) for fuel subsidy in 2019, speculation is rife that a hike in pump price is in the offing, as the provision would not cover the yearly bill.
According to the Chief Executive Officer of Financial Derivatives Limited, Bismarck Rewane, $1 billion provision for fuel subsidy is not realistic, unless there will be a supplementary budget, possibly in the course of implementation.As a pointer to the looming economic distortion, 2018 subsidy payment by the Nigerian National Petroleum Corporation (NNPC) in 11 months took about N623.16 billion.
Of course, a sudden rise in fuel price will obstruct economic activities. It will raise the cost of services and inflationary pressures, while supplementary budgeting without commensurate revenue increase will lead to more debt.At the weekend, meanwhile, crude oil, the country’s major revenue earner, officially slid downwards to $52.42 per barrel (from $61), causing more concerns of a near impossible rise after the winter.
FAAC said the amount incurred by the NNPC as under-recovery was deducted from the Federation Account: January, N45.78 billion; February, N59.51 billion; March, N34.03 billion; April, N77.9 billion; and May, N88.9 billion.In June 2018, the corporation deducted about N68.6 billion. In July, August, September, October and November, it made deductions of N52.5 billion, N60.6 billion, N71.56 billion, N51.18 billion and N65.86 billion.
Managing Director of Cowry Asset Management Limited, Johnson Chukwu, noted that a $1 billion provision was an indirect way of signaling a price hike. He said without adequate plan, this would lead to crisis.
The 2019 budget, which represents a 3.18 per cent decrease from the 2018 plan, has lost about $8 per barrel as of today, with a benchmark of $60 per barrel. This is even as the production proposal of 2.3 million has never been reached in the last four years.Also, the global oil cartel, the Organisation of the Petroleum Exporting Countries (OPEC), is believed to have reduced Nigeria’s quota to less than 1.8 million barrels per day. The implication of the development is that the faulty projection of $60 per barrel for 2.3 million barrels, totaling $138 million each day, has been trimmed to $93.6 million at a price of $52 per barrel for approximately 1.8 million, assuming there is a ready buyer.
The loss of $44.4 million, representing 32.2 per cent decline in revenue projected and loss of foreign exchange reserves accumulation, on sustained basis, is capable of triggering exchange rate pressure, shortage of funds and debt plans.Chukwu added: “The oil cartel has cut Nigeria’s production level. If you cannot achieve your revenue projection, it becomes difficult to carry out capital expenditure plans. It is obvious we will overshoot our deficit projections again. And as usual, we would borrow more.”
With the development, the proposed revenue of N6.97 trillion and a deficit of N1.86 trillion, with an average exchange rate of N305 per dollar, 3.01 per cent growth and 9.98 per cent inflation forecasts, will not be altered.Head of Research at FSDH Merchant Bank Limited, Ayodele Akinwunmi, said he was hoping the plan succeeds. He, however, faulted the exchange rate forecast, which he said would not help government’s revenue projection.
“The government would need to rework the budget assumptions to take account of the realities on ground, to make the plan implementable. It is also certain that the level of budget deficit in the 2019 budget will be more than estimated.“Lower exchange rate at N305 per dollar, against the falling oil price forecast for 2019, will make the realisation of the revenue projection appear difficult,” he said.
Admitting that there might be increased deficit, should the projections fail, he called on government to fully incorporate private sector partnership to fund some projects.For Fidelis Onyjegbu of the Good Governance Office at CSJ, the imminent economic disaster associated with the impending strike by the organised labour will take everyone by surprise.
“Besides, the silence of the budget on the higher education sector – the refusal to take fiscal steps to reconvene the sector, which has been crippled by strikes from university and polytechnic teachers, is another economic misfortune.“Another issue is that the deficit at N1.859 trillion is to be financed mainly by borrowing N1.649 trillion – N824.82 billion from domestic sources and N824.82 billion from external sources. The deficit is 21.05 per cent of the overall expenditure of N8.83 trillion and 26.68 per cent of the projected revenue of N6.97 trillion. This will further add to our already high debt profile.”
He added: “The revenue framework is mostly based on expected revenue from oil. The postulation is overly optimistic and fails to be guided by the cautionary approach to plan on the conservative side.”
Members of the Organised Private Sector (OPS) and consumers meanwhile have expressed concern about the fragility of the economy based on its high dependence on the oil sector for revenue and foreign exchange earnings as well as the projected rise in inflation and borrowing rates in the next 12 months.
According to the OPS, the limited progress in the ongoing effort to diversify government’s revenue sources and the performance of the oil and gas sector would remain critical factors that would shape the outlook for the economy in 2019.Besides, some observers in their projection on the Central Bank of Nigeria’s 2018 fourth quarter Consumer Expectations Survey report released at the weekend, noted that inflation within the next 12 months would be driven by prices of rent, food and other household needs, telecommunication, electricity, debt payment and house purchase.
The survey, conducted between November 24 and December 7, 2018, covered a sample size of 1,770 households drawn from 207 enumeration areas across the country, with a response rate of 99.2 per cent. It showed that in spite of the adverse projections, consumer overall confidence index improved in the fourth quarter of 2018, as more consumers were optimistic in their outlook.On price change outlook, the survey said most respondents expected prices of goods and services to rise in the next 12 months, with an index of 13.3 points.
Also, the Lagos Chamber of Commerce and Industry (LCCI) called for an acceleration of the economic diversification agenda of the Federal Government.
The chamber hinged its plea on the challenges facing the economy as a result of the recent downward trend in global oil prices.Oil prices dropped to $54 per barrel on December 22, from a peak of $88p/bl in September and October, below the $60/bl 2019 budget projection.
Despite the improvement in the manufacturing sector’s Purchasing Managers’ Index (PMI) in 2018, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), through its National President Iyalode Alaba Lawson, advocated improved infrastructure and power supply, to sustain the growth of the manufacturing sector.
In its 2019 economic outlook, the LCCI said there was a need for some adjustments, to forestall any impending shock and the risk of the country sliding into another recession.In the report signed by Director-General Muda Yusuf, the chamber noted that given the challenging economic conditions, key policy reforms would be imperative to support and sustain macro-economic stability. It listed the policy reforms as including a foreign exchange management framework that reflects market fundamentals, acceleration of the economic diversification agenda, normalisation of Lagos ports environment and the oil and gas sector reform (especially the Petroleum Industry Bill).
Others are reduction in the cost of governance at all levels and improvement in the domestic revenue (particularly independent revenue) to reduce volatilities of government earnings.
“According to estimates by Capital Economics’ analysts, every $10 per barrel fall in oil prices will cause a three to five per cent decline of the Gross Domestic Product in most of the Gulf economies, and a slowdown of 1.5 to two per cent of GDP in Russia and Nigeria on an annualised basis,” the chamber added.
For NACCIMA, Lawson said: “As we exit the year 2018, we have seen our economy slowly consolidate its recovery from recession. We must understand that there is still much work to be done to consolidate our gains and work harder not to slip back into recession.
“Perhaps, the foremost area of challenges is the increasing insecurity and violence threatening business and investment and project in our country. Businesses cannot thrive in the midst of prolonged and elevated insecurity. The rather weak economic performance in certain sectors in some geo-political zones is directly linked to insecurity. Government must act to address the various sources of insecurity.In this regard, NACCIMA appeals to all politicians and other stakeholders in the electioneering process to ensure a peaceful and credible 2019 elections.”