Reality Of The Dwindling Resources From Fallen Oil Prices Hit Home As Federal Government Borrows To Fund The 2015 Budget
The Ministry of Finance yesterday said that the Federal Government had borrowed the sum of N881.122 billion to fund the 2015 budget. Permanent Secretary of the Ministry, Mrs. Anastasia Daniel-Nwobia, disclosed this at a public hearing organized by an ad hoc committee of the House of Representatives on non implementation of capital projects in the 2015 budget, in Abuja.
Daniel-Nwobia, who was represented by the Director General of the Budget Office of the Federation, Mr Aliyu Gusau, explained that “the sum of N502. 122 billion was appropriated for domestic borrowing and this has been fully raised and disbursed to Consolidated Revenue Account (CRF).
“Following the drastic decline in revenue gap due to fall in oil prices and the processing time it takes to conclude external borrowing, the amount appropriated for external borrowing N380 billion has also been funded through the domestic bond market.
“Accordingly, a total amount of N882.122 billion appropriated for both domestic and external borrowing has been fully raised”. She stated that despite ongoing cash crunch, the ministry continued to evolve fiscal policies to grow the economy by putting in place measures to diversify the economy, promote fiscal discipline, and improve non-oil revenue generation amongst other measures toward improving the well being of Nigerians.
According to her, the ministry has issued waivers, concessions and exemptions to targeted imports of equipment and machinery to support economic growth, job creation and development of domestic industries such as agriculture, power and mines and steel. The ad hoc committee on the non implementation of capital projects in the 2015 budget however expressed dissatisfaction with the ministry’s presentation.
Chairman of the ad hoc Committee, Hon. Aliyu Patigi urged the ministry to form an inter agency committee with relevant institutions to come up with up to date documents. “The presentation is very sketchy and does not give a holistic view for full understanding of what the 2015 budget implementation is all about.
“We expected you to provide vivid insights into the regime of import duty waivers using explanatory notes to describe how and what was done and why. “Because each day, companies keep declaring profits running into hundreds of billions and yet they are given incentives and waiver when sectors such as the textile industry has no such consideration for revival”, Patigi said.
Describing the 2015 budget as a very important piece of legislation, he went further to say that the budget is not a fake promise to Nigerians and must be implemented to the fullest. The committee adjourned to September 22 to enable the Finance ministry, and other stakeholders, to provide more information on why the capital projects in the 2015 budget is not been implemented.
It would be recalled that Managing Director, Afrinvest West Africa Limited, a research and investment advisory firm, Mr. Ike Chioke, had last January predicted that with the fall in oil process, Nigeria would need to borrow more to fund the 2015 budget. “If you recalibrate the budget at say $45 per barrel, you will find out that we have a shortfall of N1tn in revenue.
And that N1tn is a lot of drop from the oil revenue as well as the tax revenue coming from the oil sector of the economy. Without going into much too much of details, it is not a linear relationship between the drop in oil price and the nation’s revenue. For example if oil price is at $100 per barrel and you sold one million barrel, the government does not actually get $100m; the government gets something around $40m because there is cost of production.
There is cost sharing between the government and the companies involved in oil production. These companies are into various joint-venture agreements and production-sharing partnerships with the government and
other private companies.
So what comes to the government is about $40m after the deduction of the production cost. “However, when the price drops from $100 per barrel to around $50 (bearing in mind that there is a cost of production that does not go down), the drop in government revenue is very significant; it could be as much as 70 per cent.
This is because as the oil price is dropping, the cost of production is still flat. This has an impact on what the government will get from oil revenue and by implication the amount to be shared by the three tiers of government. “This is why we feel that the budget is probably not reflective of what the current environment suggests.
In the same budget, you see a domestic borrowing of N570bn, which is similar to what the government planned to borrow last year, although it ended up borrowing about N1tn. Given that we estimate about N1tn funding gap in the revenue, we estimate that there may be about N2tn additional borrowing this year to make up for the shortfall; but the government won’t put it there yet”, Chioke had said.
– Dyepkazah Shibayan, Abuja