COVID-19: Nigeria’s Oil Earning to Decline by 90%

The earning of Nigeria from crude oil has been projected to decline by 90.0% in 2020.

The projected was made at a Citizens Dialogue Session on Government Fiscal Policy.
The Nigeria Ministry of Finance, Budget and National Planning and the Department for Internal Development (DFID) held the Citizens Dialogue Session on Government Fiscal Policy as the outbreak of COVID-19 continues to affect the economy.

The ministry announced some review in the finance of the country.
The Minister for Finance, Budget and National Planning, Mrs. Zainab Ahamed, who was ably supported by Prince Clem Agba (Minister of State, Budget and National Planning), Mr. Ben Akabueze (DG Budget Office of the Federation).

At the dialogue, it was also said that while government expects GDP to contract by 3.5% YoY in 2020, revenue of the Nigeria Customs Service is projected to be N1.2 trillion in 2020 as against N1.5 trillion previously.

Some reviews and projections were announced, which include: “Estimated net oil & gas revenue available for Federation Account Allocation Committee (FAAC) distribution is now forecasted 80.0% 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).

With average production cost of Nigerian crude has been revised downward to $28 per barrel from $33 per barrel (with implications for Petroleum Profit Tax).”
It was stated that a severe outbreak of COVID-19 in Nigeria could magnify the impact of low oil price and weaker domestic crude production as amount accruable to VAT pool account now forecasted at N2.0 trillion in 2020 as against N2.1 trillion in 2019.

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).
Also, 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).

In a devastating effect, the amount accruable to federation account now projected at N3.9 trillion from N8.6 trillion in previously year with federal government receipt from federation account for 2020 is now put at N2.4 trillion when compared to N4.8 trillion in 2019.

In a trickling effect, 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 as there is a 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.”

As part of measures to alleviate the impact of COVID-19, the government has set up an Economic Sustainability Committee to, among others, assess systemic vulnerabilities and develop programs that would make the expected recession short-lived and ensure sustainable long-term growth

It was added that measures are underway to strengthen agricultural value-chain with strategic focus on land acquisition, road networks, and funding. Government also plans to offtake agro-products when market conditions are unfavourable“Government is looking at funding supports for the aviation sector with the president likely to decide on land border closures after the current health crisis.”

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