Nigeria: Country to service debt with N2.678trn in 2020, minister tells lawmakers
Nigeria has increased her debt servicing budgetary allocation to N2.678 from N2.453 trillion for 2020, the country’s Finance Minister told lawmakers on Thursday.
The country’s Leadership of the National Assembly was briefed by the minister Zainab Ahmed, where she gave a breakdown of the plan by the Federal Government to amend the N10.59 trillion 2020 budget passed by the National Assembly in December 2019.
The meeting attended by principal officers from both chambers, and was presided over by the President of the Senate, Ahmad Lawan, and the Speaker of the House of Representatives, Femi Gbajabiamila.
Nigeria’s borrowing ballooned recently with concomitant astronomical debt service hanging on the country that has increasingly seen its bid to shake off economic crunch dimmed by the outbreak of coronavirus pandemic.
Nigeria has almost five thousand infections as at Wednesday with over one hundred deaths.
Oil prices have collapsed with a collapsed economy starring the country in the face sending jitters of unavoidable unrest across the central government.
The increasing borrowing amid acute shortage of opportunity to make money of hers is forcing reduction in the over 10 trillion budget in Africa’s biggest economy.
It was just a matter of time for Nigeria’s hands to be forced beyond the pandemic to adjust to revenue to consumption reality, analysts said.
“The budget amendment is very important, but I believe that when we are faced with this kind of challenge (COVID-19 pandemic), it is an emergency and we should do everything and anything possible to fast track the passage and implementation of the government intervention that is so critical and crucial at this stage,” Lawan offered in a subdued note.
“I believe that we shouldn’t delay it any longer,” Lawan, who’s serving his first tenure as Senate President sounded desperate adding that, “Next week, and I will suggest the early part of next week, we should have that document(MTEF) ready so that we can consider it alongside the budget. It is supposed to be the tonic of what Nigerians are waiting for.”
Nigeria has practically dropped her capital vault prospect, a major challenge for the government of Muhammadu Buhari, who came to power with much hope in 2015. Buhari was declared winner again in 2019, in a much condemned election.
“We have listened to the various adjustments you have made to avoid going into recession,” Lawan told the minister who was pencilled down by Buhari few weeks ago to be available to provide explanations to any question the lawmakers may seek.
“However, to avoid going into a deeper recession, I think we need to do a little bit much more.”
Nigeria’s regulated foreign exchange of several windows, widely condemned as confusing and riddled with corruption is further bruised by dropped in oil prices.
This has sent the naira sapping in strength with the parallel market ( Nigerians’ major reliance for foreign currencies) to over N450 per dollar as at Friday while the central bank’s under N300 per dollar is reserved for government officials, top politicians and family and friends, critics have always pointed out.
Lawan advised the minister that, “After this meeting with the leadership, I suggest that you engage with our relevant committees in the Senate and House of Representatives to look at the nitty gritty that would be considered more in detail at the presentation level.
“On the whole, let me assure you that the National Assembly and Executive arm are on the same page, and that is to say that we will work to ensure that we have a budget 2020 amendment that will address the needs of the people of this country.
“One thing is that the net public expenditure must be targeted at net maximum performance for the benefit of the people of this country.
“In other words, we must come up with an amended budget that is operable and favorable to Nigerians,” Lawan said.
The Speaker of the House, Femi Gbajabiamila said, “The benchmark is so critical and so important, because once you passed the law, it becomes difficult to adjust that benchmark, and then what happens to the excess?”
Nigeria funds her budget from oil proceeds. Any dip in price affects the country’s budget. And this needs constant readjustment subject to constraint drop in oil price(s).
“We have always had problems with the Excess Crude Account, potentially an account which has no backing of the law. So, let’s even assume that the price remains static at $35, that means we have $10 going to the Excess Crude Account which we have no control over in terms of spending, that is why we guard that benchmark price very jealously.
“Is there a possibility of having a proviso built in in the budget…So that there can be an automatic kick in if the benchmark price goes beyond $26 or $27. We want you to explore that possibility.
“So, I think you should study the market and see what happens next week by the time you present the adjusted budget,” Gbajabiamila said.
Speaking on Nigeria’s debt profile, the Speaker said, “I would also want to address the issue of our deficit and tie it with the issue of debt relief. I’m not sure I heard any presentation on how much we owe and how much we are paying back in this budget.
“The reason I asked is that at the moment, I believe, for want of a better word, some of our creditors are very vulnerable right now. And depending on how you package your case, I believe they should be the ones coming to beg you to take debt relief, if not outright cancellation.”
Ahmed’s explanation was that, “the US$57 crude oil price benchmark approved in the 2020 budget is no longer sustainable.
“it is necessary to reallocate resources in the 2020 budget, to ensure the effective implementation of required emergency measures, and mitigate the negative socioeconomic effects of the COVID-19 pandemic.”
Ahmed stated that in line with the global economic outlook and relevant domestic considerations, the assumptions underpinning the 2020-2022 Medium Term Expenditure Framework (MTEF) and the 2020 Budget was revised to slash crude oil benchmark price from US$57 per barrel to US$25 per barrel; reduce crude oil production benchmark from 2.18 million barrels per day to 1.9 mbpd.
She added that the government also adjusted the budget exchange rate to N360/US$1; and reduced the upfront fiscal deductions by the Nigerian National Petroleum Corporation (NNPC) for mandated Oil and Gas sector expenditures by 65 percent from N1.223 trillion to N424 billion.
She disclosed that the amount available for funding the 2020 Budget is now estimated at N5.548 trillion, down from N8.419 trillion, a revised revenue estimate which is 34 percent (N2.87 trillion) lower than what was initially approved.
Federal Government’s aggregate expenditure budget was slashed by N88.412 billion; Statutory Transfer from N560.47 billion to N397.87 billion; and Overhead costs of Ministries, Departments and Agencies of Government from N302.43 billion to N240.91 billion.
Debt Service provision was, however, increased from N2.453 trillion to N2.678 trillion.
On Provision of N500 billion for COVID-19 Intervention Fund, the Finance Minister in her presentation explained that N263.63 billion will be sourced from Federal Government Special Accounts, N186.37 billion from Federation Special Accounts and the balance of N50 billion expected as grants and donations.
According to her, “the sum of N186.37 billion will be applied toward COVID-19 interventions across the federation, while an additional N213.60 billion was provided in the Service Wide Votes for COVID-19 Crisis Intervention recurrent expenditures.”
She disclosed that while a total of N100.03 billion was provisioned in the Intervention Fund for new capital spending, the Federal Government carried out a cut in capital expenditures for Ministries, Departments and Agencies of Government from N1.564 trillion to N1.262 trillion.