Federal Government of Nigeria Cuts 2015 Budget Benchmark to $73.

Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala 

With the price of oil in the international market continuing its downward spiral, the federal government on Sunday announced a number of measures to cushion the economy from exogenous shocks.

Addressing the press yesterday, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, said the 2015-2017 Medium Term Expenditure Framework (MTEF), which was recently submitted to the National Assembly had been revised.

The MTEF, which had proposed a benchmark of $78 per barrel of oil for the 2015 budget, is now revised downwards to $73 per barrel and will be re-submitted to the National Assembly for its approval.

The minister said the federal government had decided on a multi-pronged, strategic response to mitigate the adverse effects of the decline in global oil prices, adding that the Central Bank of Nigeria  (CBN) was working with the ministry to apply appropriate fiscal and monetary measures in managing the economy, assuring Nigerians that there was no cause for panic.

The measures, she said, were a mixture of medium and long-term steps designed to engender economic growth, reassure investors and keep the economy on a stable course through the period, which has culminated in a significant drop in oil revenues for Nigeria and other oil-producing countries since June this year.

According to her, the measures are designed to boost non-oil revenues further, plug loopholes and wastage in the system as well as cut unnecessary expenditure in order to cope with the situation, which are scenario-based.

She stated that additional measures would be introduced if oil prices continue to fall further.

Okonjo-Iweala said the Federal Ministry of Finance had been keeping tabs on movements in global oil prices because of the critical importance of oil as the country’s most important source of revenue.

She explained that although the government had been working hard on several scenarios and contingency plans in readiness for any eventuality, it was important to proceed in a measured manner based on a complete understanding of the challenges.

“Given the nature of the oil market, we needed to see the extent and trend of the oil price in order to take the right measures. Panic is not a strategy.
It’s important that our strategies are based on facts and a clear understanding of both the strengths of the economy and the challenges posed by the drop in oil prices which is currently at $79 for our premium Bonny Light Crude.

“The drop in oil price is a serious challenge which we must confront as a country. We must be prepared to make sacrifices where necessary. But we should also not forget that we retain some important advantages such as a broad economic base driven by the private sector and anchored on sound policies.

“Our strategy is to continue to strengthen the sectors that drive growth such as agriculture and housing while reducing waste with a renewed focus on prudence,” she said.

She noted that although the drop in oil prices is a serious challenge, it has also provided an opportunity for the country to focus on greater diversification and refocus efforts towards the non-oil sector in preparation for a future with less oil revenue.

She stated that the decline in oil prices had given additional impetus to the federal government’s focus on increasing non-oil revenues, adding that the collection target for the Federal Inland Revenue Service (FIRS), which has been working with Mckinsey to increase receipts would be revised upwards for next year.

The FIRS, she said, had so far collected an additional N65 billion out the N75 billion target given to it, disclosing that for 2015, the revised target is N160 billion above the 2014 base.

The minister said as part of the efforts to cut expenditure, international travel and training within the public service would be severely curtailed, adding that critical infrastructure projects would not be affected since they are key to economic growth and development as well as job creation.

She also reassured Nigerians that public sector wages as well as key initiatives in education, health and other areas critical to the country’s human development would not suffer any setback.

The minister announced a key initiative on the revenue side to include a surcharge on luxury items, including private jets, alcoholic beverages such as champagne, yachts, and exotic cars based on engine capacity, among others. She said details were being worked out.

On calls from some quarters to respond to the decline in revenues arising from the drop in oil prices by printing more naira to fund projects, the minister said such poorly thought-out populist recommendations would be disastrous for the country if implemented.

She said such prescriptions ignore the facts of history as well as the elementary principles of economics.

“Printing money without adequate revenue support will lead to serious consequences for the country. It will spur inflation as the experiences of Germany in the early part of the last century and more recently, Argentina and Zimbabwe demonstrate. This prescription will victimise the poor and middle class that it is supposedly protecting,” she added.

She explained that the best way to protect the interest of the ordinary people is to control inflation as much as possible, expand the economic base, strengthen the sectors that drive growth, boost critical infrastructure and create more jobs.

“We have already started doing that, the results are already coming but we still have a lot of work to do. To show how serious government is about job creation, President Goodluck Jonathan will tomorrow, November 17, launch the fourth edition of YouWin to support another 1,500 entrepreneurs through a private equity fund for them. That is an expression of government’s commitment and seriousness to job creation,” she said.

In the meantime, Nigeria’s real Gross Domestic Product (GDP) dropped to 6.23 per cent in the third quarter (Q3) of the year compared to 6.54 per cent in the second quarter, said the National Bureau of Statistics (NBS) on Sunday.

The NBS, in its quarterly GDP estimates added that Q3 GDP was 0.31 per cent lower than the estimates for the previous quarter.

It said the oil sector experienced production challenges in the period under review as average daily production of crude oil fell to 2.15 million barrels per day (mbps), compared to 2.21mbpd in Q2 as well as 2.26mbpd in Q3 2013.

Notwithstanding, Nominal GDP in Q3 2014 was estimated at N22.93 trillion representing a 5.51 per cent increase compared to N21.73 trillion in the previous quarter and N20.16 trillion in Q1 2014.

Real GDP in monetary terms stood at N17.65 trillion in Q3 compared to N16.08 trillion in Q2 2014.

The oil sector contribution to real GDP in the third quarter stood at 10.45 per cent compared to 10.76 per cent in Q2 2014 and 11.51 per cent in Q3 2013.

In real terms, non-oil sector contributed 7. 51 per cent to GDP in Q3 compared to 6.71 per cent the previous quarter and 8.46 per cent in the corresponding period in 2013.

The non-oil sector growth was largely driven by increase in crop production, textiles, apparel and footwear, telecommunications and real estate sectors, according to the statistical agency.

In real terms, agriculture was the largest contributor to GDP in Q3 2014 at 26.63 per cent, the manufacturing sector contributed 9.83 per cent to GDP in Q3 2014, while information and communications contributed 9.58 per cent to GDP.

In the period under review, the human health and social services sector of the economy contributed 0.68 per cent to GDP, accommodation and food services contributed 0.97 per cent, while art and entertainment and recreation contributed 0.17 per cent to GDP in Q3.

THISDAY