The Federal Government of Nigeria reported a revenue shortfall of 27% in 2020, increasing the amount of money borrowed by the government to finance its budget.
The information was made available by the Minister for Finance, Zainab Ahmed, during a public presentation of the 2021 FGN Approved Budget – Breakdown & Highlights which was done via Zoom, an online platform for virtual meetings.
According to the data seen by Nairametrics Research, the FG generated an actual revenue of N3.9 trillion during the year, compared to its targeted revenues of N5.36 trillion. The presentation also indicated that the numbers were preliminary and would be updated once the reconciliation process was concluded.
Oil Revenue Performance
In the report, total oil revenue was N1.5 trillion, about 50% higher than its budget of N1 trillion.
- The government also reported that it received a dividend of N144 billion from its shareholdings in NLNG, up from N80.3 billion a year earlier.
- The fall in oil prices in 2020 forced the government to revise its benchmark crude oil target price to $28 per barrel from the $57 per barrel originally set in the 2020 budget.
- However, average oil prices sold during the year by the government was $43 per barrel as oil prices recovered in the second half of the year as the lockdown eased globally.
- In terms of crude oil production output, the FG reported a total of 1.79 million barrels per day as against the revised 1.8 million barrels per day projected.
- It is important to add that the increased oil revenue was also because of the devaluation of the exchange rate, which rose from a budget of N360/$1 to N379/$1 in the third quarter of the year.
Non-Oil Revenue Performance
Non-Oil revenue performance did worse with revenues falling 21% to N1.2 trillion. Non-oil revenues are mostly taxes, levies, and customs revenues.
- Company Income Tax fell 18% to N673 billion while VAT revenue suffered a 32% drop to generate a N196 billion in revenue.
- Customer revenue also fell 12% to N396 billion despite the effect of the border closure.
- The Nigerian economy was shut down in April 2020 and operated with several limitations amidst government requirements for Nigerians to maintain social distancing and avoid crowded areas.
- This impacted business operations across the country, indirectly affecting their ability to generate revenues that would have been taxed.
- Perhaps the biggest setback in revenues was its earnings in signature bonuses, falling to N78 billion from N350 billion.
Despite the revenue shortfalls, the government still managed to outspend its expenditure targets, reporting a total of N10 trillion compared to a target of N9.9 trillion which was appropriated.
- The report also reveals that of the expenditure, N3.27 trillion was for debt service, and N3.19 trillion for Personnel cost, including Pensions.
- It also revealed that 1.80 trillion had been released for capital expenditure, which is about 89% of the provision for capital.
- Out of this, up to N118.37 billion was released for COVID-19 capital expenditure.
The result of the revenue shortfall and increased expenditure is a fiscal deficit of about N6.1 trillion as against the N4.6 trillion budgeted by the government.
- To fund this, they borrowed N2 trillion from the domestic market and another N1.2 trillion from foreign markets.
- The balance N2.8 trillion was obtained from the CBN.
- The government plans to incur a budget deficit of N5.60trillion for 2021, representing 3.93% of GDP.
- It will fund this via N2.34 trillion each in domestic and foreign borrowing and another N709 billion from multilateral sources.
- It hopes that about N205 billion from privatisation proceeds will support its efforts to close the deficit. The government did not report any income from privatisation proceeds in 2020 even though it budgeted N126 billion.
Covid-19: No more lockdown, CBN advises government
Despite rising Covid-19 cases, the CBN MPC encourages government to avoid locking down the economy again.
The Central Bank of Nigeria encouraged the Federal Government of Nigeria to avoid locking down the economy again as the second wave of Covid-19 causes an increase in confirmed cases and more deaths.
The apex bank cited the negative impact of another lockdown on the economy as a major concern suggesting that sustaining the tepid economic recovery was perhaps a higher priority than curtailing the fast-spreading variant of the second wave virus via another lockdown.
The remarks were contained in the monetary policy communique read out by the central bank governor Godwin Emefiele following the end of the bank’s monetary policy committee meeting, the first for the year.
“While expressing understanding of the public health dilemma of the recent spike in infections, MPC encouraged Government not to consider a wholesome lockdown of the economy so as not to reverse the current gains of the stimulus earlier provided in 2020.” Emefiele
As of January 26, 2020, Nigeria had a total number of Covid-19 cases of about 124, 299, and 1,522 deaths as the second wave continue to spread rapidly across the country. Since December 1st, Nigeria’s positive cases have risen by about 56, 742 cases (83% ) from about 67,557 on the last day of November 2021.
However, the central bank’s recommendations are hinged on the precarious state of the economy which is highlighted throughout a rather sobering MPC communique. In one statement the apex bank admitted that the rise in covid-19 cases was dragging economic recovery backward as more Nigerians become wary of socializing but the spate of economic recovery cannot be jeopardized.
According to the CBN “the outlook for the recovery, however, appears to be dampened by the second wave of the pandemic considering its intensity” yet it still maintained that the previous lockdown was the trigger for another recession.
“In the Committee’s consideration, it noted that the COVID-19 pandemic and the necessary measures put in place by the Government to forestall its public health impact, such as the lockdown and other associated restrictions, contributed to the Nigerian economy going into recession, much like almost every other country in the world.”
CBN Paints a gloomy picture of the economic recovery
The members of the monetary policy committee also detailed challenges to economic recovery being experienced by the country such as higher inflationary rates, weak PMI numbers, and an increase in non-performing loan ratios of commercial banks.
On increase in non-performing loans
“The Monetary Policy Committee (MPC), however, noted the marginal increase in the Non-Performing Loans (NPLs) ratio which rose to 6.01 percent at end-December 2020 from 5.88 percent at end-November 2020 and above the prudential maximum threshold of 5.0 percent. While noting that this development is not unexpected under the prevailing circumstances, it urged the Bank to strengthen its macroprudential framework to bring NPLs below the prescribed benchmark.”
On PMI numbers
The MPC noted with concern the continuing sluggish recovery in the Manufacturing and Non-Manufacturing Purchasing Managers’
Indices (PMIs), which remained below the 50-index point benchmark in December 2020, at 49.6 and 45.7 index points, respectively, compared with 50.2 and 47.6 index points during the previous month. This weak performance was attributed to the resurgence of the pandemic, foreign exchange pressures, increased costs of production, general increase in prices and decline in economic activities.
This uptick was attributed to the increase in both the food and core components of inflation, which rose to 19.56 and 11.37 percent in December 2020, respectively, from 18.30 and 11.01 percent in November 2020. This continued upsurge in food inflation was attributed to the logistical bottlenecks, spurred by the increasing security challenges in many parts of the country, which disrupted food production and supply to the market. Other factors driving the core inflation, include the recent deregulation of the downstream sector of the oil industry, which led to hikes in the price of Premium Motor Spirit (PMS) and the upward adjustment in electricity tariff.
What this means
As the economy slowly recovers from the Covid-19 induced lockdown, several of our major indicators still show there is trouble ahead. These 3 indicators are some of the most telling.
- Higher non-performing loans, though expected are symptomatic of what businesses are currently going through as they strive to improve their balance sheet. With weaker sales and piling inventory most businesses will continue to struggle to meet up with their debt obligations increasing the number of non-performing loans in the country.
- The Purchasing Managers Index is a critical bellwether for predicting when Nigeria gets out of the recession. As a compilation of how businesses are fairing, an index below 50 suggests we are far from a V-shaped recovery and could face a longer wait to get out of the current recession.
- Nigeria’s galloping inflation rate and economic contraction have created stagflation that puts the economy in a rather precarious situation. Much of the causative factors for the rising inflation are outside of the control of the CBN suggesting a higher inflation rate could persist in the coming months.
- The CBN indicates we could get out of higher inflation rates later this year, but not before it hit its peak as we expect the cost of goods and services to keep rising.
Despite the gloomy picture, the CBN expects the economy to recover this year provided the country continues with its economic stimulus.
Available data and forecasts for key macroeconomic variables for the Nigerian economy suggest further improvement in output
growth in the first quarter of 2021. This would be supported by the coordinated and sustained interventions of the monetary and fiscal authorities, including the broad-based stimulus and liquidity injections.
But to ensure its optimistic outlook for the economy comes through, the CBN is recommending that more efforts should be geared towards acquiring and distributing vaccines rather than shutting down the economy.
“Members thus agreed that the Committee’s current priority remains to quicken the pace of the recovery through sustained and targeted spending by the fiscal authority supported by the Bank’s interventions. In this light, it was thought necessary to increase collaboration with the fiscal authority by providing complementary spending to finance productive ventures in a bid to improve aggregate supply and reduce prices. This is in addition to effectively collaborating with the Presidential Task Force on COVID-19 through the existing private sector Coalition against COVID-19 (CACOVID) to procure and distribute vaccines to fast-track the pick-up of business activities and economic recovery.”
IMF optimistic about global economy but warns new Covid variants could affect recovery
IMF is quite optimistic about the fortune of the global economy but expressed fear that the new Covid variant could derail economic recovery.
The International Monetary Fund (IMF) has expressed optimism about the global economy but warns that the new COVID 19 variant could affect the global economic growth, according to its latest World Economic Outlook.
According to the report, “the institution now expects the global economy to grow 5.5% this year — a 0.3 percentage point increase from October’s forecasts. It sees global GDP (gross domestic product) expanding by 4.2% in 2022”.
According to its Chief Economist, Gita Gopinath:
- “Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic, and on the ability of policies to provide effective support until that happens.
- “There remains tremendous uncertainty and prospects vary greatly across countries.
- “China returned to its pre-pandemic projected level in the fourth quarter of 2020, ahead of all large economies. The United States is projected to surpass its pre-Covid levels this year, well ahead of the euro area.
- “Policy actions should ensure effective support until the recovery is firmly underway, with an emphasis on advancing key imperatives of raising potential output, ensuring participatory growth that benefits all, and accelerating the transition to lower carbon dependence.”
What you should know
- There has been a surge in the number of reported cases of the new variant Covid-19 infections and deaths over the past few months.
- The new variant has been described as being more infectious and potentially deadlier than the original strain.
- The IMF had cut its GDP forecasts for the euro zone this year by 1%.
- It is being projected that the 19-member region, which has been severely hit by the pandemic, would grow by 4.2% this year.
- Germany, France, Italy and Spain — the four largest economies in the euro zone — also saw their growth expectations cut for 2021.
- Economic activity in the region slowed in the final quarter of 2020 and this is expected to continue into the first part of 2021. The IMF does not expect the euro area economy to return to end-of-2019 levels before the end of 2022.
- IMF revised its GDP forecast upward by 2% points on the back of a strong momentum in the second part of 2020 and additional fiscal support, with GDP expected to grow to 5.1% this year.
Updated: President Buhari appoints new Service Chiefs
President Buhari has appointed new Service Chiefs to replace the former with immediate effect.
President Muhammadu Buhari has appointed new Military Service Chiefs, and congratulated the outgoing Service Chiefs for efforts of “enduring peace to the country.”
The appointments was disclosed by Presidential media aide, Femi Adesina in a social media post on Tuesday.
Adesina said: “PMB appoints new Service Chiefs. Maj Gen LEO Irabor, CDS, Maj Gen I Attahiru, Army, Rear Adm AZ Gambo, Navy, AVM IO Amao, Air Force. He congratulates outgoing Service Chiefs on efforts to bring enduring peace to the country.”
President Buhari had come under heavy criticism in the last couple of years over his failure to sack the Service Chiefs for failing to tackle insecurity in the country.
“I have accepted the immediate resignation of the Service Chiefs, and their retirement from service. I thank them all for their overwhelming achievements in our efforts at bringing enduring peace to Nigeria, and wish them well in their future endeavours,” Buhari disclosed in a separate statement.
I have also appointed new Service Chiefs, to replace the retired officers:
Major-General Leo Irabor, Chief of Defence Staff
Major-General I. Attahiru, Chief of Army Staff
Rear Admiral A.Z Gambo, Chief of Naval Staff
Air-Vice Marshal I.O Amao, Chief of Air Staff.
— Muhammadu Buhari (@MBuhari) January 26, 2021
What you should know: The outgoing Service Chiefs were appointed by President Buhari in 2015 and despite clamour from several quarters for the President to replace them with fresh blood, nothing happened until today’s announcement.