There are indications that the imminent second wave of COVID-19 in most countries would have a negative impact on demand for crude oil, which would have a consequential effect on Nigeria’s revenue generation projection of N8.3 trillion in 2021.
Nigeria has projected a revenue generation of N8.3 trillion in the 2021 budget recently passed by the national assembly.
NATIONAL ECONOMY reports that oil prices reversed last week with the outbreak of a new strain of Covid-19, which is threatening the global demand recovery. Also, oil sentiment turned negative as near-term problems with demand finally moved to the front burner after weeks of increasingly bullish sentiment.
Dozens of countries cut off travel to the UK over fears of a coronavirus mutation. Lockdowns have also grown tighter in multiple places in December. “The nightmare before Christmas scenario has set in, with a combination of the ‘mutant virus’ compounded by Brexit angst,” said Stephen Innes, chief market strategist at Axi.
Apart from possible shrinking demand for oil, Nigeria’s major source of income, pundits say that the projection of N8.3 trillion is unrealistic, given the previous years’ revenue performances.
A development economist and Board Chairman of Amaka Chiwuike-Uba Foundation (ACUF), Dr. Chiwuike Uba said that since 2015, the actual revenue of the federal government has only increased from N3.24tn in 2015 to N3.86tn as of 2019, representing an increase of less than 20%.
He said, ‘‘On the other hand, public debts and unfunded deficits have witnessed a steady increase. The budget deficit increased from a shortfall of N1.52trn in 2015 to N5.2trn in 2021, and public debt of less than N10trn as of June 2015 to N25.2trn as of June 2020. In the same vein, the debt service increased from N624bn in 2014 to N3.3trn in 2021. Painfully, the budgeted 2021 fiscal deficit will increase at the end of 2021, with its attendant implications on debt servicing. Nigeria, therefore, is gradually heading towards a fiscal cliff with debt service to revenue ratio hitting over 90%.
“This situation is made worse with the increasing cost of governance. The recurrent expenditure has continued to increase despite the hardship many Nigerians are subjected to by the government. Almost 50% of Nigeria’s 2021 budget will be spent by less than 0.2% of the population. When subjected to further scrutiny and analysis, the amount for recurrent expenditure may even be more, due to classification issues, or, administrative budget manipulations, or smartly inserted frivolous items as part of capital expenditure. In addition to over N200bn frivolous items in the initial budget presented by the President to NASS, items such as the purchase of catering materials, computers, purchase of office buildings among others are still included in the 2021 budget. Unfortunately, some of the items classified as capital expenditure do not have any direct impact on the citizens. Economic recovery and resilience cannot happen in such an environment,” Uba added.
Also, Professor Akpan Hogan Ekpo, an economist and public policy analyst said Nigeria cannot be planning her economy or budget on oil prices. He said, ‘‘Oil prices are not stable, so we must have a non-oil budget and it does not mean that oil will be zero. For example, if you budget with oil price at $40 per barrel, what if it becomes $30 or $20, how do we generate the difference? Again, we all know oil is a wasting asset because it will finish one day. The revenue projection of 2021 budget still takes oil as the main source of revenue, which in my mind is dangerous.”
He pointed out that one of the ways to augment source of revenue generation is for the country to be ready to scale down on what it wants to do in 2021, stressing that the other way is to raise the internally generated revenue. “There are many people who are not in the tax bracket and I am not saying the government should increase the tax rate, but expand the tax net so that many people outside the tax net will be included so that the government can increase the revenue base.
“The next thing to do is expenditure switching. Some expenditure is not necessary. For example, why would the government and some of its agencies continue to budget for furniture every year? Has the furniture depreciated? We can cancel all of that and use the money for health and education in 2021.
Dr. Kester Erawoke, an Economist in the Department of Economics, Delta State University, Abraka, said, “The federal government hopes to generate almost N8 trillion for budget 2021. However, the amount budgeted for debt servicing is about N3.12 trillion, this means most of the proposed 2021 budget will be used to service loans, what will be left for capital and recurrent expenditure? It is a big problem. Remember the loan obtained from China, they will not let go of any debt because all monies are for specific projects and if they are not paid, they will take over such project with respect to agreement reached.
An economic and financial analyst, Mr. David Ibidapo, said if Nigeria fails to implement some key reforms in key sectors of the economy, most especially in the nation’s foreign exchange market, if a shock as devastating as COVID-19 pandemic strikes again in the nearest future, the country may be back to, if not worse off than what it’s currently experiencing in 2020.
“One major misfortune of Nigeria is the fact that we are highly exposed to fluctuations in the oil market and our foreign reserves are largely dependent on the performance in the oil market. “So we must diversify our revenue base and that can be done if only the fiscal authorities can identify some other key sectors of the economy like agriculture and start looking at how to boost economic activities in those sectors. “If you look at the share of our crude oil export to total export it is over 90 per cent and that means that our major export is crude oil so we need to not necessarily reduce the share of oil export but also increase reasonably and significantly export in commodities that we produce.”
Meanwhile, the Nigerian Civil Aviation Authority (NCAA) has given out protocol for all passengers originating from United Kingdom and South Africa effective December 28.
The NCAA director general, Mr. Musa Nuhu, issued the protocol in a letter to all Nigerian and foreign operators flying into Nigeria with a reference NCC/DG/AIR/11/16/286 on Sunday in Abuja.
According to Nuhu, the move affected all airlines with passengers originated from the United Kingdom and South Africa regardless of transit arrangements.
He said the federal government, through the presidential task force, had reviewed quarantine protocol due to recent spike in cases of COVID-19 in Nigeria and reported highly transmissible new variant of virus in United Kingdom and South Africa.
For the two countries, passengers must present the following documents in order to be allowed to board their flight to Nigeria.
He said passengers would be received and processed separately by public health authority on arrival in Nigeria.
He further said that all passengers would be required to self-isolate for seven days after arrival followed by a COVID-19 PCR test.
He stated that a dedicated register of arriving passengers from the United Kingdom and South Africa would be opened for enhanced surveillance and active enforcement of the protocols.
“This shall be applicable to scheduled and non-scheduled flights conveying passengers originating from the United Kingdom and South Africa.
“The earlier quarantine protocol, which became effective on September 18, 2020 shall continue to subsist for flight originating from other countries except for the validity of the pre- departure PCR test result, which can now be 96 hours (4 days) from date of departure.
The director general said punitive measure would be taken against who would fail to comply with the content of the letter.