Nigeria’s Gross Domestic Product projection for this year and the economic growth forecast for 2020 has been revised by the International Monetary Fund (IMF), with a warning that momentum is being lost in the drive for global expansion.
The international body backtracked from its previous projection of Nigeria’s economic, forecasting that the country’s economy will grow slower than expected. In its World Economic Outlook Update, titled ‘A Weakening Global Expansion,’ IMF also downgraded its global growth prediction.
Nigeria’s economic growth outlook
The International Monetary Fund had previously predicted Nigeria’s 2019 gross domestic product to pick at 2.3 per cent in a 2018 report, but in its latest economic update, IMF downgraded Nigeria’s GDP to two per cent for this year. The Christine Lagarde-led body also projected a 2.2 per cent economic growth for Nigeria next year, lowering the initial forecast from 2.5 per cent for 2020.
Sub-saharan economic outlook
IMF projected economic growth in Sub-saharan Africa should pick up in 2019, forecasting a 3.5 per cent for the African continent from the 2.9 per cent recorded last year, 2018. The Washington-based fund also predicted the economic growth of Africa will hit 3.6 per cent in 2020.
“For both years, the projection is 0.3 percentage point lower than last October’s projection, as softening oil prices have caused downward revisions for Angola and Nigeria.”
Over one-third of sub-Saharan economies are expected to grow above five per cent in 2019–20.
Global economic growth outlook
The IMF has warned of momentum lost in the drive for expansion as experienced in recent years. This reflected in the downgrade of the global economic growth outlook for 2019 and 2020. IMF in its updated report estimated a 3.5 per cent economic growth in 2019, cutting down from the initial 3.7 per cent forecast. IMF also projected that in 2020, global economic growth will pick up by 3.6 per cent from the previous prediction of 3.7 per cent.
IMF’s statement on global economic growth
Aside from the internal conditions within emerging countries, the IMF stated that difficult external conditions like the trade tensions, rising US interest rates, dollar appreciation, capital outflows, and volatile oil prices have all tested the emerging market and developing economies over the past few months.
Advice for Nigeria and other countries
IMF suggested strengthening macroprudential frameworks would address high private debt burdens and balance-sheet currency and maturity mismatches in some economies. Adding that flexibility of exchange rate could complement these policies by helping to buffer external shocks.
“Where inflation expectations are well anchored, monetary policy can provide support to domestic activity as needed.”
It said, “Improving the targeting of subsidies and rationalising recurrent expenditures can help preserve capital outlays needed to boost potential growth and social spending to enhance inclusion.
“For low-income developing countries, concerted efforts in these areas would also help diversify production structures (a pressing imperative for commodity-dependent economies), and their progress toward the UN Sustainable Development Goals.
Nigeria’s excess crude account falls to $72 million
Nigeria’s excess crude account has now fallen by a whopping 98% in just 5 years.
Nigeria’s Excess Crude Account (ECA) now stands at $72 million as the country continues to grapple with an unprecedented revenue crisis not seen since the early eighties. The ECA account has now fallen by about 98% within the last 5 years.
The information on the excess crude account was revealed by the Minister of Finance, Zainab Ahmed in a National Economic Council Meeting during the week. The ECA is a savings account retained by the Federal Government and is funded by the difference between the market price of crude oil and the budgeted price of crude oil as contained in the appropriation bill.
There were major concerns last November when it was reported that the ECA balances held just $324.5 million one of the lowest balances recorded at the time. At $72 million the ECA is in low territory highlighting the effect of the fall in crude oil prices this year. Crude oil prices have crashed to sub-zero in March and have risen back o just over $40/barrel in recent weeks. However, it still remains low from Nigeria’s previous budget benchmark.
ECA in the news
About a year ago Nairametrics reported Nigeria’s Excess Crude Account has dropped to $480 million. This is as controversy continues to trail the $1 billion military spendings which were withdrawn from Nigeria’s Excess Crude. According to the Central Bank of Nigeria’s annual report for 2018, Nigeria’s crude excess account fell from $2.45 billion in 2017 to $480 million as of December 2018.
Just 5 years ago (August 2015) the ECA stood at $2.2 billion. This was the early days of the Buhari administration. It was $3.6 billion in February 2014, one of the highest balances on record. That same month, at its monthly FAAC, the government agreed to remove fuel subsidy from its books. Fuel subsidy is currently being borne by the NNPC.
The Controversies: Last year, the federal government under President Muhammadu Buhari was accused of mismanaging the country’s Excess Crude Account especially the $1 billion reportedly spent on military equipment.
- The National Security Adviser (NSA) retired Major General Babagana Monguno Gen. Babagana was quoted to have disclosed that he was not aware of the whereabouts or disbursement of the $1billion drawn from the ECA by the Buhari presidency in 2017 for security purposes.
- While controversies trail the statement credited to the NSA, with many describing it as diversion of public funds, the Presidency provided some explanations.
- Responding to the allegations, Senior Special Assistant on Media and Publicity, Garba Shehu, disclosed that various procurements had been made for the purchase of critical equipment for the Nigerian Army, the Nigerian Navy, and the Air Force, contrary to the allegations.
Nigeria’s ECA in retrospect: In Nigeria, there are two Sovereign Wealth Funds: the Excess Crude Account and the Nigeria Sovereign Investment Authority (NSIA). Note that these two are funded by the savings earned when oil prices are at peak.
- Hence, as a larger chunk of revenue is appropriated for ECA and NSIA, the country’s external reserves are likely to fall.
- Note that the sovereign wealth fund was established to address the controversies surrounding the Excess Crude Account.
- The fund is usually expected to generate revenue to meet budget shortfalls in the future, provide dedicated funding for the development of infrastructure and saves for future generations.
ECA depleted by 98% in 5 years: A closer look at the various annual reports of the Central Bank of Nigeria shows that Nigeria’s excess crude account has now fallen by a whopping 98% in just 5 years.
Presidency dismisses allegation of Osinbajo receiving N4 billion from recovered loots
The accusation was described to be an obvious campaign of lies and calumny.
The office of the Vice President has reacted to a series of tweets accusing Professor Yemi Osinbajo of instructing the embattled acting Chairman of the EFCC, Ibrahim Magu, to release the sum of N4 billion out of N39 billion that was recovered from alleged looters.
These allegations have been described as “false and baseless”.
A statement that was signed by the Senior Special Assistant to the Vice President on Media and Publicity, Laolu Akande, said, “with all emphasis at our disposal, let it be firmly stated that these are totally false and baseless fabrications purposing to reflect goings-on at the probe panel investigating Mr Ibrahim Magu”.
Ibrahim Magu was relieved of his duties this week, after a probe was conducted on his activities as Acting Chairman of the nation’s anti-graft agency. He has since been replaced with Mohammed Umar.
Meanwhile, the statement by the Presidency also complained about the recent rise in people being paid to “peddle blatant falsehoods” against the Vice President and says Mr Osinbajo “will not be distracted by these obvious campaigns of lies and calumny”.
The statement added that the online publications “being criminally defamatory in nature” have been referred to law enforcement agencies for investigation.
OFFICE OF THE VICE PRESIDENT
— Presidency Nigeria (@NGRPresident) July 8, 2020
Minister of Petroleum explains reasons for subsidy removal
The Minister said it was unrealistic for the government to continue with the subsidy regime.
The Federal Government has explained the reason for the deregulation of the downstream sector of the oil industry. The government said that this was to ensure economic growth and development of the country.
This was disclosed by the Minister of State for Petroleum Resources, Timipre Sylva, in a press statement on Thursday, July 9, 2020, in Abuja.
Sylva said that it was unrealistic for the government to still continue with the subsidy regime, especially with the Premium Motor Spirit (PMS) otherwise known as petrol, as it had no economic value.
He asked Nigerians to ignore the misinformation and misguided comments that have been in the public space on the issue.
According to the Minster, ‘’It has become expedient for the Ministry of Petroleum to explain misconceptions around the issue of Petroleum Products Deregulation. After a thorough examination of the economics of subsidizing PMS for domestic consumption, the government concluded that it was unrealistic to continue with the burden of subsidizing PMS to the tune of trillions of Naira every year.’’
“More so, when the subsidy was benefiting in large part the rich rather than the poor and ordinary Nigerians. Deregulation means that the Government will no longer continue to be the main supplier of Petroleum Products, but will encourage private sector to take over the role of supplying Petroleum Products.”
He pointed out that in line with global best practices, the price of petroleum products will be determined by market forces. He, however, added that the government will continue to play its traditional role of regulation and ensure that it was not priced arbitrarily by private sector suppliers.
Sylva said that the regulatory function will be similar to that played by the Central Bank of Nigeria in the banking sector where they try to make sure that deposit money banks do not charge arbitrary interest rates on its customers.
The minister noted that the government has earlier revealed that an increase in crude oil prices would also reflect at the pump price of petroleum products.
Going further Sylva said, ‘’Indeed, one of the reasons we have been unable to attract the level of investments we desire into the refining sector has been the burden of fuel subsidy. We need to free up that investment space so that what happened in the Banking Sector, Aviation Sector and other Sectors can happen in the Midstream and Downstream Oil Sector.’’
” We can no longer avoid the inevitable and expect the impossible to continue. There was no time government promised to reduce Pump Price and keep it permanently low. Let us, therefore, ignore the antics of unscrupulous middlemen who would want status quo ante to remain at the expense of the generality of Nigerians.,” he added.
He disclosed that the deregulation policy will attract more investments into the oil sector, create more jobs and opportunities and free up trillions of naira to develop infrastructure instead of enriching a few Nigerians.
The minister noted that government who is mindful of the impact of higher PMS prices on Nigerians is working to roll out the auto gas scheme which will provide citizens with alternative sources of fuel at lower cost.