The gross monthly collections of non-oil revenue expected to drive capital expenditure in the 2016 budget is on the decline. This underperformance presents some risks to the Federal Government’s expansionary fiscal stance which pegs its N1.84 trillion capital expenditure on aggressive target of non-oil revenue collection. COLLINS NWEZE writes that while the option of borrowing to meet budget shortfalls in the short-term is plausible, diversification of the economy is needed in the long-run to achieve sustainable growth.
Two things have kept the Federal Government worrying about funding the ambitious N6.06 trillion 2016 budget. The first is fall in crude oil prices, followed by decline in non-oil revenues which is expected to fund government’s N1.84 trillion deficits in the budget, targeting critical infrastructure.
The failure of these two options, presents the third, which is borrowing from local and international markets to be supervised by the Debt Management Office (DMO). The plunge in the revenues means that the debt option to funding the budget remains the viable lifeline for the country.
Besides, slide in crude oil prices, and Nigeria’s production is also of concern. Oil disruption especially vandalisation of pipelines has pushed production to the lowest in 20 years, as attacks against facilities in the Niger Delta increase in number and audacity.
Last week, Chevron Corp. shut down about 90,000 barrels a day of output following an attack on a joint-venture offshore platform that serves as a gathering point for production from several fields. Even before that strike last Wednesday night, Nigerian oil production had fallen below 1.7 million barrels a day for the first time since 1994, according to data compiled by Bloomberg.
On Friday, suspected members of the Niger Delta Avengers have attacked another oil facility in the Niger Delta, blowing up the Escravos pipeline linking Warri to Lagos.
While earnings from oil declined, that from non-oil segment of the economy also keeps dropping. Data from Central Bank of Nigeria (CBN’s) Economic Report showed that from January to December last year, gross monthly collections of non-oil revenue, stood at N3.12 trillion ($15.8 billion) over the 12 months. But decline has set as from January this year, non-oil revenue felled significantly to N196 billion compared with monthly average of N477 billion projected in the 2016 budget.
Besides, Nigeria earned a total of N143 billion from its non-oil exports in the fourth quarter of 2015, which shows a drop of 39.1 per cent or N90.6 billion from N234.43 billion recorded in the third quarter of the year, CBN figures showed.
FBNQuest, the investment and research arm of FBN Holdings, disclosed that Customs and excise is the weakest of the four components of gross non-oil revenue. Customs contribution of N50 billion in January compares with a pro rata average of N72 billion in the budget is worrisome.
The Customs Service has pointed to CBN policies as the reasons for the shortfall. It presumably had the famous circular on the 41 import items which the CBN restricted from accessing forex in mind which has reduced import revenues.
“We should wait for several months’ data to judge the success of the FGN’s several initiatives, including: the Treasury Single Account, scrutiny of waivers and exemptions, collection of stamp duty (subject to a legal challenge), efficiency gains, possible revision of the standard Value Added Tax rate and regulatory fines,” the firm said.
Regarding foreign debt, the strategy is to borrow on non-concessionary terms for projects with self-paying capacity and/or job creation potential, and on concessionary terms and grants for social sector projects.
Experts believe that with the continued slide in government revenues from crude oil, its plan to provide tangible assets like housing, power (electricity), transport, education, communication, and technology, may be hampered by paucity of funds, making it to rely on borrowed funds.
Loan monitoring
The House of Representatives’ Committee on Aids, Loans and Debt Management is seeking for more powers that would enable the DMO monitor projects to be financed with borrowed funds.
The House Committee said that the mandate of the DMO should be strengthened to include monitoring the implementation of all projects of government that is financed with borrowed funds.
The Chairman of the House Committee on Aid, Loans and Debt Management, Hon Adeyinka Ajayi, advocated for this position alongside other members of the committee at a three-day retreat for members of the committee in Owerri, Imo State, over the weekend.
Hon Ajayi, in his keynote address at the retreat organised by the DMO, noted that it has become imperative for the agency to be empowered to monitor the implementation of all projects financed with borrowed funds.
He argued that since it was the duty of the DMO to raise funds to finance budget deficit, “the body should as well be saddled with the responsibility of monitoring implementation”, noting that this would ensure compliance, transparency and accountability.
The committee praised the DMO management for coming up with the retreat, whose theme was: Debt Sustainability and the Challenge of Financing Economic Recovery, saying that the retreat was timely, coming at a time the nation was facing some economic challenges.
Hon Ajayi said the workshop is coming on the heels of concerns expressed by some Nigerians over the rising debt profile of the nation. While acknowledging the prevailing economic challenges, the House Committee Chairman said the committee will work with the Debt Management Office to ensure effective implementation of the 2016 budget.
The Director-General of the DMO, Dr. Abraham Nwankwo, restated government’s commitment to financing capital projects aimed at addressing Nigeria’s huge infrastructural deficit and repositioning the economy.
The DMO boss who spoke against the backdrop of the agency’s role in the implementation of the 2016 budget, said the nation’s long term debt financing of sustainable economic recovery and growth is feasible given its abundant ideal economic capacity.
Nwankwo told members of the committee that the administration of President Muhammadu Buhari has taken a bold step to stimulate the economy by making sure that the nation’s huge infrastructure gap was quickly closed through efficient and effective application of all borrowed funds into capital projects.
Other members of the House Committee on Aid, Loans and Debt Management emphasised the need for the diversification of the economy especially in the areas of agriculture, solid minerals and manufacturing.
Dr. Nwankwo said the debt body has been helping to country manage its debt effectively. For instance, it began the implementation of the strategic objective of assisting the states of the federation to develop debt management institutions and capabilities since the last quarter of 2007, as part of its five-year strategic plan.
The goal, he explained, was to forestall a relapse into debt un-sustainability, as was experienced by the country before its successful exit from the Paris and London Club debts over-hang. The strategy was to redress the very weak debt management institutions, structures and practices at the state levels towards a more effective coordination of public debt management.
The DMO has also established Domestic Debt Data of States of the 36 states, with framework in place for regular updates. The debt office has also helped in the passage by some states within the federation, the Fiscal Responsibility/Public Debt Management Laws to govern debt management and engender fiscal discipline.
Priority projects in the budget
The Minister of Budget and National Planning, Senator Udoma Udo Udoma, who presented the 2016 Budget highlights in Abuja, said the Social intervention projects are in five areas, including job creation, school feeding, conditional cash transfer, enterprise programme.
The power, rails and road are also very important priority areas.There are a number of specific activities but the need to raise up to 7,000 megawatts installed capacity of electricity remains a priority.
There is also need to conclude the privatisation of National Independent Power Project plants and improve management and performance of Treasury Single Account.
On agriculture, N940 million would be channeled into the development of Strategic Grazing Reserves while another N90 million is for Price Stabilisation/Buy-back/Price Gurantee Scheme, just as NN939.7 billion is for extension services.
National Assembly and borrowing
The National Assembly is expected to approve the borrowing programme for every succeeding year and approval of overall limits, for the amounts of consolidated debts of the Federal, state and local governments, to be set by the President on the advice of the minister.
The DMO captures the benefits of using debts to fund projects more succinctly. “If you want to build a railway from Lagos to Aba, there are two options. Firstly, you can save up the money for 10 years, before starting the project. The second option is to borrow and build the railway, and within 10 years, generate enough revenues to offset the debt,” DMO’s head, Policy Strategy and Risk Management, Joe Ugolala said.
He sees the second option as more plausible as it captures the inherent benefits of borrowing to build infrastructure that is in the interest of the economy. He explained that for one to borrow, there must be that inherent capacity to repay, whether the debt came from internal or external sources.
He explained that the Federal Government has the capacity to borrow from outside to fund budget, and support specific projects including infrastructure.
He said that despite challenges with external and internal economic volatility, the DMO is committed to supporting opportunities for employment generation. “We are more than ever committed to doing what we know how to do best, democritisation of public debt. We need to use debt to tackle poverty. We are committed to employment generation. Now that things are tight, we need to show that we are resilient people,” he said. “We need to reassure ourselves that we have what it takes to achieve a sustainable growth”.
He called for the democratisation of public debt management system, adding that Nigeria’s debt to Gross Domestic Product (GDP) ratio is still low. “The rebasing of the economy shows it has grown rapidly, and that the larger the economy, the larger the debt. There must be optimum relationship between the equity and debt,” he said.
Ugolala, said there is so much demand for infrastructure because of its immense benefits to the economy. Speaking on external and domestic borrowing guidelines for the Federal and State Governments and their agencies, he explained that the National Assembly has a role to play in government’s borrowing plan.
