The gloomy outlook of the Nigerian economy may take a turn for the worse because of the unsavoury drama following the federal government’s 2016 budget of N6.08 trillion which is reported missing in the National Assembly
THERE is confusion over the whereabouts of the 2016 Budget which was presented to the National Assembly last December by President Muhammadu Buhari. On Tuesday, January 12, the Senate denied knowledge of the where about of the budget while the House of Representative said the budget was with them. Another account also said that the budget was withdrawn by the presidency.
Although Femi Adesina, senior special adviser to the President, Media and Publicity, told Realnews on phone that the matter is already in the open and that Senator Ita Enyang, senior special adviser to the President on National Assembly Matters is better placed to speak on the matter, he was quoted by the Eagle Online as saying: “Yes, some amendments were made to the budget. We did not withdraw the Budget. That is the position.”
Similarly, Garba Shehu, senior special assistant to President Muhammadu Buhari, Media and Publicity, tweeted on Tuesday that “Nobody except the President can withdraw the budget. As far as we know he has not done so. The copies in their hundreds have been delivered to both chambers of the National Assembly. By tradition once the budget is submitted, it ceases to be our property. Enquiries as to where it is submitted should be directed to the appropriate quarters.”
This notwithstanding, the federal government – both the executive and the legislature, must know that the ugly narrative about the disappearance, withdrawal or amendment of the 2016 budget will send wrong signals about the state of Nigeria’s already weak economy.
The government must make haste to correct the tardiness that followed the preparation of the budget if the fundamentals or revenue projections they used in the first place were not realistic. The harsh economic realities now show that crude oil price which is the major source of revenue for the country is now $30 compared to $35 dollars which was the benchmark for the budget.
Not doing so, will have serious repercussions given reports that the stock market lost more than N3 trillion last week. As it stands today, there is very little to show that the fiscal side of the economy is being handled properly given that the first policy document which contains the intension of government recurrent and capital expenditure is mired in an unhealthy controversy.
As it stands today, it appears that only the Central Bank of Nigeria, CBN, is marshaling sporadic ideas on how to steady the economy. The CBN has excluded 41 items from officially getting forex for imports such as toothpicks and rice. On Monday, it also stopped selling forex to bureau de change operators.
CBN”s action is to protect the dwindling foreign exchange reserve. According to the apex bank, Nigeria has been dealing with the effects of three serious and simultaneous global shocks, which began around the third quarter of 2014. These include over 70 percent drop in the price of crude oil, which contributes the largest share of our foreign exchange reserves; geopolitical tensions along critical trading routes in the world including between Russia and Western Powers, Saudi Arabia and Iran, etc; and normalisation of monetary policy by the United States’ Federal Reserve Bank.
These strong global headwinds have considerable impact on the Nigerian economy. In 2015, GDP growth decelerated from 3.9 percent in the first quarter to 2.4 percent in the second quarter. However, it has increased slightly to 2.8 percent in the third quarter. Although headline inflation remained single digit, it stayed slightly above the range of 6—9 percent, having risen marginally from 9.3 percent in October to 9.4 percent in November 2015.
Following the drop in crude prices from a peak of $114 barrel in July 2014 to as low as $33/barrel in January 2016, the country’s reserves has suffered great pressure from speculative attacks, round tripping and front loading activities by actors in the forex, FX, market. This fall in oil prices also implies that the CBN’s monthly foreign earnings has fallen from as high as $3.2 billion to current levels of as low as $1 billion. All these have not reduced the demand for foreign exchange by mostly domestic importers. For example, the last we had oil prices at about $50 per barrel for an extended period of time was in 2005. At that time, our average import bill was N148.3 billion per month.
Contrarily, Nigeria’s average import bill for the first nine months of 2015 is N917.6 billion per month, even though oil prices are now less than $35 per barrel. The net effect of these combined forces unfortunately is the depletion of our foreign exchange reserves. As of June 2014, the stock of foreign exchange reserves stood at about $37.3 billion but has declined to around $28 billion as of today.
There is no gainsaying that the Central Bank has taken some monetary policy measures to help the economy including prioritisation of the most critical needs for foreign exchange such actions alone will not straighten the economy. There is need for others entrusted with macro-economic management of the economy to square up to the challenge facing Nigeria and ensure that the current confusion facing Budget 2016 is eliminated now and in the future budgeting process.
— Jan. 13, 2015 @ 12:57 GMT