Benchmarks 1.93mbpd Oil Production, $35pb
As Nigeria May Lose $26bn In Oil Revenues
The Nigerian Senate, on Thursday resumed plenary to consider a review of the 2020 Appropriation Act with Federal Executive Council proposing a marginal cut in the 2020 budget from N10.59tr to N10.51tr, in what it said is in view of the sharp decline in crude oil prices and the cut in Nigeria’s crude oil quota occasioned by the COVID-19 pandemic.
In a letter to the Senate by President Muhammadu Buhari, the Federal Executive Council is seeking approval of the revised 2020-2022 Medium Term Expenditure Framework/Fiscal Strategy Paper, and revised Appropriation Bill 2020.
A statement by Ezrel Tabiowo, Special Assistant (Press) to President of the Senate, Buhari had in a separate letter also requested the approval of the Senate for external borrowing to the tune of $5.513bn to fund the budget.
According to the requests for approval of the 2020 Appropriation Act (Amendment) Bill, which was referred to the Committee on Finance; Local and Foreign Debts, just as the loan request, the Federal Government is now projecting an oil production benchmark of 1.93m barrels per day and a benchmark oil price of $35 per barrel.
Leading debate on the Amendment bill, the Senate Leader, Yahaya Abdullahi, said of the revised budget, N398.505bn is for Statutory Transfers; N2.951tr for Debt Service; N4.928tr is for Recurrent Expenditure; while N2.23tr is earmarked for contribution to the development fund for Capital Expenditure.
He noted the upward adjustment by the Central Bank of Nigeria (CBN) in the exchange rate to N360/US$1, even as it “generally expected that the naira will suffer further devaluation as Nigeria is projected to lose about US$26bn in oil revenues.”
The President blamed the review on “the sharp decline in crude oil prices and the cut in Nigeria’s crude oil quota occasioned by the COVID-19 pandemic,” following which he lamented that “the assumptions underlying the 2020 appropriations act are no longer sustainable.
“It is also imperative to adjust expected revenues considering the widespread disruptions in other domestic economic activities, as well as international trade and transportation due to the measures implemented across the world to curtail the spread of the COVID-19 pandemic.
“Furthermore, it is necessary to allocate resources in the Appropriation Act 2020 to ensure effective implementation of required emergency measures and other interventions necessary to mitigate the negative socio-economic effects of of the COVID-19 pandemic,” he stressed.
Leading debate on the 2020 Appropriation Act (Amendment) bill, the Senate Leader, Yahaya Abdullahi, said out of the revised N10,509,654,033,054 budget, N398,505,979,362 is for Statutory Transfers; N2,951,710,000,000 is for Debt Service; N4,928,525,467,849 is for Recurrent Expenditure; while N2,230,912,585,842 is for contribution to the development fund for Capital Expenditure.
He added that the aggregate amount available for the Capital Expenditures – exclusive of Capital in Statutory Transfers – in the revised 2020 budget is N2.23tr, comprising N1.264tr for Ministries, Departments and Agencies of Government; N100.3bn for COVID-19 expenditures, N20bn for Capital component for the Special Intervention Programme; N274.85bn for other Capital supplementation; N141.17bn Capital budget for Ten GOEs; N42.96bn for Donor Grant funded expenditures and N387.3bn funded by project-tied loans.
President Buhari said loan is expected to finance the proposed revised 2020 budget; implementation of priority projects of the Federal Government; and projects to support the State Government.
According to him, the request by the Executive arm of Government is “in accordance with the provisions of Section 21 of the Debt Management office Establishment Act 2003, and Section 41 of the Fiscal Responsibility Act 2007.”
“As the Senate may be aware, the COVID-19 pandemic has resulted in economic and fiscal challenges for many countries. Nigeria has also being affected in this regard, especially with the lower demand for crude oil which has affected our sales, and the sharp decline in the price of oil below $25 per barrel, which is much lower than the $57 per barrel benchmark in the 2020 Appropriation Act.
“The COVID-19 pandemic has also created the need for additional expenditure in the health sector. All of these have necessitated the review of the 2020 budget and the Medium Term Expenditure Framework 2020-2022.
“Following from paragraph 2, the draft revised budget proposed by the Executive for 2020 has a higher deficit. In order to finance this deficit, the Federal Government is planning to raise funds from both domestic and external sources.
“For the External component, the government is negotiating with multi-lateral institutions for funding on concessionary terms. The facilities totaling $5.513 billion being arranged in this regards are detailed in table 1.”
The President explained further that the proposed external loans to finance revised 2020 budget deficit are from the International Monetary Funds (IMF) $3.4bn; World Bank, $1.5bn; African Development Bank, $500 million; and Islamic Development Bank $113m.
“In addition to the financing required for the revised 2020 budget, financing is also required for some priority projects of the federal government to address the COVID-19 pandemic and improve Nigeria’s food security”, President Buhari explained.
Giving a breakdown on how the $5.513bn loan would be applied, Buhari disclosed that the proposed $600m loan from the Islamic Development bank would be used to fund projects to support of Nigeria’s response to challenges caused by COVID-19; while the sum $125m from the African Development Bank would be used for strengthening of Healthcare system to improve response to COVID-19.
He added that Financing Small Farmers to mitigate food security impact of COVID-19 would cost $23m; while $500m from the African Export Import Bank would be used for the Provision of critical medical supplies to combat COVID-19.
On a proposed loan of €995m loan from the Export Import Bank of Brazil, he stated that the amount would be used to enhance mechanization of Agriculture and Agro-processing in Nigeria.
“The Islamic Development Bank has indicated that only $113 million of financing will be available to the Federal Government of Nigeria in the 2020 fiscal year to enhance the government’s COVID-19 response, which will come from restructuring of previously approved but inactive facilities for Nigeria,” the President added.
He further disclosed that a loan request to the World bank between $500 and $750m would be used to fund State fiscal transparency, accountability and sustainability Programme; and to implement COVID-19 Action Recovery and Economic Stimulus Programme to support state level efforts to protect livelihoods, ensure food security and stimulate economic activity.
Photo caption: President of the Senate, Senator Ahmad Lawan, making his exit out of the Senate Chamber immediately after plenary adjourned on Thursday.