Following the dwindling oil revenues and novel Coronavirus pandemic, Nigerian Government officials on Tuesday projected that the economy will contract by 3.4 per cent, just as Nigeria’s budget for 2020 has been reviewed a second time in order to assume a lower petroleum price of $20 per barrel.
In March, the initial assumed oil price of $57 per barrel was reduced to a worst case scenario of $30 per barrel.
Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed said in March that this year’s record 10.59 trillion naira ($29.42 billion) budget would be cut by about 15 per cent.
But speaking at a web conference on Tuesday, the Minister said that the benchmark would again have to be revised down. “we are in the process of an amendment that is bringing down the revenue indicator to $20 per barrel.”
With this, oil revenues were expected to fall by more than 80 per cent.
Mrs Ahmed spoke at the Ministry of Finance, Budget and National Planning and the Department for Internal Development (DFID) citizen’s dialogue session on Nigeria’s response to the fall in oil prices and the COVID-19 pandemic. Others who attended the event include Prince Clem Agba (Minister of State, Budget and National Planning), Mr. Ben Akabueze (DG Budget Office of the Federation), and Lade Jaiyeola (CEO, Nigeria Economic Summit Group).
Ahmed also said Nigerian oil and gas projects will be “delivered much later than originally planned” due to upstream budget cuts.
It also plans to cut oil production to 1.7 million barrels per day (mbpd), from the 2.1 mbpd initially proposed in the budget, under an agreement brokered by the Organization of the Petroleum Exporting Countries (OPEC).
The Key Takeaways from the Citizens Dialogue session include:
- Estimated net oil & gas revenue available for Federation Account Allocation Committee (FAAC) distribution is now forecasted 80.0 per cent lower at N1.1 trillion (vs. N5.5 trillion previously), despite a N649 billion reduction in allowable fiscal deductions by NNPC for federally funded projects/expenditures.
- Specifically, projected PMS under-recovery has been reduced from N457 billion to zero
- Oil production now projected at 1.7mbpd (vs. 2.18mbpd previously)
- Oil prices expected to average $20 per barrel (vs. budget benchmark of $57 per barrel)
- Average production cost of Nigerian crude has been revised downward to $28 per barrel from $33 per barrel (with implications for Petroleum Profit Tax
- A severe outbreak of COVID-19 in Nigeria could magnify the impact of low oil price and weaker domestic crude production
- Customs revenue is now projected at N1.2 trillion in 2020 (vs. N1.5 trillion previously)
- Amount accruable to VAT pool account now forecasted at N2.0 trillion in 2020 (vs. N2.1 trillion previously)
- Amount accruable to federation account now projected at N3.9 trillion (vs. N8.6 trillion previously)
- Projected federal government receipt from federation account for 2020 is now put at N2.4 trillion (compared to N4.8 trillion previously)
- States and local governments are now likely to obtain N2.1 trillion and N1.5 trillion, apiece, from FAAC (compared to N3.3 trillion and N2.5 trillion, respectively, in previous estimates)
- Projected N5.6 trillion budget deficit to be financed through privatization proceeds (N126 billion), drawdowns from FGN Special Accounts (c.N260 billion), bilateral/multilateral drawdowns (N387 billion), and new borrowings (N4.6 trillion)
- Debt service pressure to be eased by significant moratoriums on new loans (IMF’s RFI of $3.4 billion comes with 3 years moratorium) and expected deferrals of current debt service obligations until macro conditions improve
- The budget office is finalizing a revised 2020-2022 Medium Term Expenditure Framework and Strategy Paper (MTEF/FSP) as well as an amendment to the 2020 Appropriation act
- According to Nigerian Economic Summit Group (NESG), Nigeria needs N10.1 trillion worth of interventions but current intervention capacity stands at N4.5 trillion
- The implied funding gap of N5.6 trillion is likely to be covered by Medium to long term domestic borrowing
- External borrowings (possibly from World Bank, IMF, IFC, AFDB)
- Total announced stimulation (FG, CBN, e’tal) currently stands at N4.5 trillion or 3.1% of GDP (vs. 10.0% of GDP in South Africa).