By Nse Anthony-Uko
(Sundiata Post) – Despite the rising oil prices which have significantly increased oil revenues to the country, Nigerian government would continue to borrow to fund its activities, further raising concerns over a debt trap.
Nigeria’s income from crude oil export has lately been boosted by the rise in crude oil prices, with Brent, the international benchmark for crude oil stood at 74.02 per barrel, surpassing the three-year high level of $73.41 and far beyond the 2018 budget benchmark of $47/barrel.
In real terms, the Federal Government realised N3.69 trillion in gross oil revenues between January and November 2017, data from the Central Bank of Nigeria (CBN) indicated.
At an estimated monthly average of N336 billion, gross oil revenues for the full-year period was probably N4.03 trillion.
That is the highest value since 2014 when the federal government earned N6.79 trillion.
In 2015 and 2016, the federal government’s gross oil revenues were as low as N3.8 trillion and N2.7 trillion respectively, as a lengthy collapse in oil prices that began mid-2014 slashed earnings by more than half and inflicted a painful recession, the first in 25 years, on the oil-dependent economy.
The improvement in oil prices is therefore good news for Nigeria in view of its significance for financing the country’s expenses.
President Muhammadu Buhari in November proposed aggregate expenditure of N 8.612 trillion for year 2018 with revenue projection of N6.59 trillion comprising oil and non-oil of N2.433 trillion and N4.165 trillion respectively leaving a deficit of N2.014 trillion to be financed from borrowings
With such estimates, Nigeria needs oil price to rise significantly in order to balance its budget as the commodity accounts for over 70 per cent of revenues.
Will Nigeria be able to channel the additional revenues from higher oil prices into funding the budget deficit thereby saving the country of higher debt burden?
The Debt Management Office (DMO) reported a 79.25 per cent increment in the nation’s debt stock within 330 months, moving up from in June N21.73 trillion 2015 to N22.2 trillion in December 2017. External debt rose to 26.64 per cent of the portfolio from its previous share of 20.04 per cent.
Nigeria under President Muhammadu Buhari has borrowed N10.6 trillion or $34 billion in three years; thereby surpassing all previous Administrations, since 1861.
Despite the rebound, oil prices remain lower than they were back in 2014, before the price crashed from about $114 per barrel down to $38.
Analysts however believe the country is not out of the woods yet. Unless oil price hits $139 per barrel, Nigeria cannot fund its budget effectively without resorting to borrowing. According to Fitch Ratings Report Nigeria has the highest breakeven oil price $139 a barrel to balance its budget placing the country in the worst situation among 14 major oil exporting nations in the Middle East, Africa and emerging Europe.
Countries such as Kuwait at $45; Qatar at $51; the Republic of Congo at $52; Abu Dhabi, United Arab Emirates, at $60; Iraq at $61; Gabon at $66; as well as Azerbaijan at $66; Kazakhstan at $71 and Russia at $72 have already hot their breakeven oil prices while Saudi Arabia at $74; Oman at $75; Angola at $82; Bahrain at $84 are not too far behind their breakeven prices unlike Nigeria at $139 per barrel.
Commenting on this Economic analyst, Henry Boyo believes that fiscal indiscipline of both the executive and the legislative arms will not allow them make judicious use of the increase but would keep borrowing.
“Shouldn’t the increased revenue from higher crude prices reduce the N2.5 trillion deficits projected in the 2018 budget and also reduce the need to borrow? You are seriously mistaken to expect such level of responsibility from the Lawmakers or Federal Executive.
“In fact, it has become a tradition, for annual budgets to be deliberately predicated on very conservative crude oil price benchmarks, even when credible projections, like the IEA January report, for example, predict more robust prices. Ultimately, the lower budget benchmarks willfully adopted will invariably induce increased government borrowing to fund projected deficits in the annual appropriation plan.
“Sadly, however, instead of applying the additional revenue from higher oil prices to reduce budget deficit and the need to borrow, the political class, will have none of that. Over the years, the projected deficit, deliberately predicated on lower crude prices, were still financed with high interest loans, while the “excess revenue” consolidated from higher than oil price benchmark is usually, temporarily consolidated into an account, which is unknown to our Constitution.
“Ultimately, State Governors will conspire with the Federal Executive, without recourse to the Legislature, to also spend additional earnings from the “Excess Crude Account”, even after loans have been obtained to fund the appropriated actual deficit for that year!
“Thus, the present excess revenue from crude prices ranging between $60-$70/barrel will also be similarly frittered away as in the past. Even if it is true that government loans are obtained at high interest rates, even when unencumbered excess foreign exchange is available, you cannot however, deny that the increased spending from both the loans obtained and higher oil revenue, will trickle down to stimulate consumer demand, reduce poverty and social stress with lower prices for more goods and services. Well, I don’t need to deny anything, I don’t know in which economy you live in, but in the Nigeria economy, the tradition of incurring and spending both the loans and the excess revenue has never reduced prices of goods and services, to make life more affordable,” Boyo said.
Another worrisome factor is that the country is still a mono-product economy depending on largely on crude oil for the bulk of its revenues.
According to analysts, the country failed to take advantage of the oil price crash to diversify the economy thus losing out on the benefits of the crisis and now that prices are tending towards pre-crisis levels there won’t be any sense of urgency to keep the economic diversification drive going.
The economy remains largely oil dependent, and with crude oil revenues rising by the day, concerns are high that having come through the worst, Nigeria may now go back to business as usual.
More so, analysts have described the N4.165 trillion projected non-oil sector revenues in the 2018 budget as overambitious and unrealisable in view of declining income from that sector in recent years.
For instance, figures from the Budget Office of the Federation showed a 49 per cent shortfall in non-oil revenue projections in the 2017 budget.
The projected revenue for the 2017 fiscal year was N5.08 trillion, based on the parameters adopted in the 2017-2019 MTEF. As of June 2017, N2.42 trillion of total revenue projected for the first half of the year was realised.
An economic analysts and former member of the Central Bank of Nigeria, CBN Monetary Policy Committee, Dr. Doyin Salami, also expressed anxiety over the 2019 elections spending that will likely slow down capital inflows into the economy and increase demand pressure on the foreign exchange market.
However, the federal government have tried to allay fears that money meant for the economy would be diverted to finance 2019 elections.
Vice President Yemi Osinbajo at a recent Lecture said the Federal Government’s capital budget would be strictly deployed to fund infrastructural projects across and would not divert capital project funds for the forthcoming elections.
“The Administration remains committed to infrastructure spending at the high levels of the past two years and the completion of major ongoing projects.” He also reiterated the commitment of the Buhari’s administration to its programme of transformation, jobs and wealth creation across the country.
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