Economy & Politics
Why the $1.5 billion World Bank loan to Nigeria is being delayed
Nigeria’s failure to meet World Bank conditions means the loans might not be disbursed till end of the year.
The World Bank might not approve (in August) the much-needed $1.5 billion loan sought by Nigeria. The delay is due to concerns over reforms, even as the World Bank believes that the country has not shown enough commitment towards achieving them.
Nairametrics understands the World Bank has included the unification of the naira and removal of fuel subsidy as one of the key reform requirements listed as conditions precedent to obtaining its loan.
The delay could leave Nigeria, which has been battling with low oil prices, with a huge revenue gap that would make it difficult to fully finance the revised $28.35 billion (10.8 trillion) 2020 national budget. Already, the CBN had revealed that Nigeria’s balance of payments gap this year will be $14 billion.
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The World Bank is of the opinion that the Federal Government and Central Bank of Nigeria are not serious about commitments to put in place credible mechanisms to enhance efficiency in the allocation and use of public finance in Africa’s most populous nation.
According to Reuters, the Bretton Woods Institution had planned to bring the loan to its board for approval this month. The World Bank, which had pointed out that Nigeria could be heading towards its greatest fiscal crisis in 4 decades, said negotiations over what Nigeria will do to secure it were incomplete.
According to a source close to the government, “They are not convinced about the reforms. All three sources declined to be named due to the sensitivity of the negotiations. The source added that the currency was the core issue.”
READ: Nigeria’s excess crude account falls to $72 million
Why the delay
World Bank loans usually depend on some conditions which include reforms. Although there has been no official statement or demand with respect to that, the World Bank had previously called for a more flexible and unified exchange rate, removal of fuel subsidies, and an increase in electricity tariffs.
Another source from the World Bank said that the loan might not be approved until October. The bank, in a statement, said that even though discussions were at an advanced stage, it was yet to present the loan for consideration to its board.
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The statement from the bank reads, “Of particular importance are the steps the government is taking to marshal the needed fiscal resources for a pro-poor response to the crisis and undertake the reforms that will help ensure a robust recovery.”
The World Bank and the International Monetary Fund (IMF) have been very critical of the multiple exchange rate policy of the Federal Government. They have pointed out that this distorts the economy and creates room for corruption and arbitrage by currency speculators.
The low oil prices have put further pressure on the foreign exchange market and the country’s external reserve. The CBN’s policy of intervening in the market to support the naira has become costlier since the crash of oil prices, as it relies on oil for 90% of its foreign exchange.
READ: Where is oil headed in the short term?
Although the naira has been devalued two times this year, the World Bank still does not consider that enough, with the complete exchange rate unification expected.
Although the Federal Government has announced the removal of fuel subsidy through a floating price cap, sources from the World Bank feel that the mechanisms for such policy were not sufficiently transparent.
Economy & Politics
Rivers State unemployment figures by NBS are fake – Wike
Governor Wike has dismissed the figures provided by the NBS concerning the rate of unemployment in his state.
The Governor of Rivers State, Nyesom Wike says that the National Bureau of Statistics’ data on unemployment in Rivers State is fake and politically motivated.
The Governor disclosed this during an interview with Channels TV on Friday morning. He said the figures are fake and political.
“It is fake; it is political. The rate (unemployment) is high, but I don’t believe in their statistics,” he said.
Nairametrics earlier reported in August that the South-South geopolitical zone is the most affected region with a 37.0% unemployment rate, followed by South East (29.1%), North Central (27.9%), Northeast (27.9%), North West (26.3%), and South West (18.0%).
Rivers State is ranked second place, with unemployment in the region at 43.7%, and underemployment at 19.8%. 1,714,189 residents were recorded as unemployed, with a total labour force of 3,921,860.
“If you have a lot of construction jobs going on, for example, does that not create employment? In Rivers State today, nobody can tell me that we have not tried in terms of employment; to reduce the level of unemployment,” Wike said.
The Governor cited formal and informal infrastructural projects across the state, which offers a means of livelihood to labourers. He went further to call on the NBS to be more deligent in their research.
“NBS should come to the state and see for themselves and see what we are doing to create jobs. Not just sitting in their offices. They never deployed anybody to come here,” Wike said.
Economy & Politics
FAAC disburses N696.2 billion in July 2020, as Lagos State parts with N1.46 billion
The sum of N696.18 billion to the Federal, State, and Local governments in July 2020 from the FAAC account.
The Federation Account Allocation Committee (FAAC), disbursed the sum of N696.18 billion to the Federal, State, and Local governments in July 2020, from the revenue generated in the month of June 2020. This was stated in the latest FAAC report, released by the National Bureau of Statistics (NBS).
According to the report, the monthly disbursement increased by 27.2% compared to N547.3 billion shared in June, and 14.8% increase compared to N606.2 billion disbursed in May 2020.
READ: Nigeria total public debt hits N31 trillion as debt service gulp over N1.2 trillion in H1 2020
Checks by Nairametrics research, shows that a total of N4.58 trillion has been shared to the three tiers of government, between January and July 2020. Highest disbursement was recorded in April (N780.9 billion), followed by N716.3 billion in January 2020.
Meanwhile, Lagos State – the economic hub of Nigeria, parted with N1.46 billion as external debt deductions in the month, indicating a total of N9.74 billion deductions between January and July 2020.
Explore the Nairametrics Research Website for Economic and Financial Data
Breakdown
- The amount disbursed in July comprised of N474.53 billion from the Statutory Account, N128.83 billion from Valued Added Tax (VAT), N42.83 billion from Exchange Gain Differences, and Distribution of N50 billion from Non-Oil Revenue for the Month.
- Federal Government received a total of N266.13 billion from the total disbursement. States received a total of N185.77 billion, and Local Governments received N138.97 billion.
- The sum of N28.50 billion was shared among the oil producing states as 13% derivation fund.
- Revenue generating agencies such as Nigeria Customs Service (NCS), Federal Inland Revenue Service (FIRS), and Department of Petroleum Resources (DPR) received N6.32 billion, N15.05 billion, and N2.68 billion respectively as cost of revenue collections.
READ: Nigeria considers request for debt relief as debt stock climbs
South-South scoops highest share
The South-South region, also known as the Niger Delta region, received the highest share of the disbursement in the month of July. The region received a sum of N49.44 billion, representing 25.4% of the total net allocation for states.
This is largely because the region contributes mostly to crude oil production in Nigeria, which is a significant source of revenue for the federation. Out of the six states in the region, only Cross River State is not an oil producing state. Hence, Rivers, Edo, Akwa Ibom, Bayelsa, and Delta States received a total of N24.28 billion as part of 13% oil derivation fund.
North-West region received N36.83 billion (18.9%); followed by North-Central region, which received a net total of N30.69 billion (15.8%). Others include South-West (N29.55 billion), North-East (N26.32 billion), and South-East (N21.97 billion).
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External debt deductions
A total of N4.47 billion was deducted from the state’s allocation, as external debt deductions for the month of July. Lagos State parted with the highest amount of N1.46 billion, representing 32.6% of the total debt deductions in the month. A sum of N9.74 billion has been deducted as a result of external debt obligations between January and July 2020.
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It is worth noting that, the State’s external debt has declined by 9.67%, from $1.39 billion recorded as at the end of December 2019 to $1.26 billion in June 2020.
Others on the list of top 5 deductions are, Kaduna (N414.6 million), Oyo (N305.4 million), Rivers (N280.3 million), and Cross River (N222 million). On the flip side, Ogun State parted with the lowest, as N9.1 million was deducted, followed by Borno (N21.6 million), and Taraba (N24.5 million).
READ: Nigeria’s manufacturing sector contracts for 5th consecutive month – CBN
Upshot
- With dwindling federally collected revenue, caused by volatility in global crude oil price and economic downtrend caused by COVID-19 pandemic, it is evident that federal allocations will likely face drastic decline, which is a cue for the State governments to strategize on more creative ways of generating revenue internally.
- A quick check at the states’ IGR numbers, shows that 91.9% of the states in Nigeria with the exception of Abuja, Ogun, and Lagos States rely more on federal allocation, as against internally generated revenue.
- This implies that several states in Nigeria are technically bankrupt without debt financing, and Federal Government monthly allocation.
Economy & Politics
Buhari to finally send Petroleum Industry Bill to National Assembly next week
Sources in the Presidency have disclosed that the President may be presenting the bill to the National Assembly.
President Muhammadu Buhari is expected to present the long-awaited Petroleum Industry Bill (PIB) to the Senate as early as next week.
According to Reuters, who were quoting 4 sources familiar with the development, the presentation of the bill to the National Assembly, follows its official approval by the president late last week. This is as the National Assembly has already formed teams of members that will work most closely on the individual portions of the bill.
Both chambers of the National Assembly must have to pass the bill after deliberating on it before it can then be passed on to the president for his final signature.
The PIB which is an oil reform bill has been in the works for about 20 years, is key to the repositioning of Nigeria’s Oil and Gas Industry under its post-COVID-19 agenda as the main laws governing oil and gas exploration have not been fully updated since the 1960s due to some contentious issues like taxes, payments to local communities, terms and revenue sharing within Nigeria.
The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), had disclosed that the delay and non-passage of the bill has made international investors to start losing confidence in the country’s oil and gas industry.
While revealing last month that the PIB will be presented to the National Assembly in the next few weeks, the Minister of State for Petroleum Resources, Timipre Sylva, also said that the executive arm will be requesting the lawmakers to specially reconvene to receive and start deliberations on the bill.
These oil reforms and regulatory certainty became more pressing this year as low oil prices and a shift towards renewable energy made competition for investment from oil majors tougher.
The draft copy of the bill which was prepared by the Petroleum Ministry is a product of series of consultation between the federal government, oil and gas companies and other industry stakeholders.
Excerpts from the bill reported by Reuters include provisions that would streamline and reduce some oil and gas royalties, increase the amount of money companies pay to local communities and for environmental clean-ups alter the dispute resolution process between companies and the government.
It also included measures to push companies to develop gas discoveries and a framework for gas tariffs and delivery. Commercializing gas, particularly for use in local power generation, is a core government priority.
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