Nigeria Requires Reforms to Halt Fiscal Slippage – Analysts
Analysts tasked the Nigerian government to consider structural reform to halt persistent fiscal slippage that has continued to widen the nation’s budget deficit. As a result, Federal Government continues to ramp up borrowings from local and domestic sources to meet up funding demand.
While the oil market continues to rally, FG revenue underperformed expectations in the first half. To finance the 2021 budget, Nigeria would have to look into raising funds via the nation’s debt market and Eurobond raise.
Corroborating this, Finance Ministry said in the medium-term expenditure framework and fiscal strategy paper (MTEP) that the fragility of the economic recovery is evinced by persistent recession in the oil sector, which has sustained contraction in oil output in the first quarter of 2021.
MTEP indicated that oil output in the first quarter of 2021 fell to 1.72 million barrels per day (mbpd) from 2.07 mbpd in the first quarter of 2020, attributable to reported shutdowns in Forcados and Okono terminals.
“Although Nigeria has the capacity to produce 2.5mbpd, a total of about 1.4mbpd of crude is currently being produced in compliance with the OPEC+ production quota.
“This excludes 300,000bpd of condensates. Data from the Department of Petroleum Resources (DPR) indicates that an average of 1.8mbpd of crude oil (inclusive of condensates) was produced in the first half of 2021, including Condensates and about 127,000 bpd of production devoted to the repayment of pre-2015 Joint Venture cash call arrears.
“Crude oil production was 0.16mbpd (inclusive of condensates) below the 1.86mbpd benchmark for the 2021 budget. Production volume was also 0.12mbpd (7.7 per cent) above the 1.56mbpd reported in the fourth quarter of 2020 and 0.38mbpd (18.5 per cent) below 2.06mbpd recorded in the first quarter of 2020”, Nigeria’s Expenditure document stated.
The IMF’s latest projection is for the Nigerian economy to grow by 2.5% in 2021, an upward revision from the earlier estimate of 1.5%. The NBS’ projected growth rate, and basis for the 2021 budget, was 3.0%, but it too has recently revised its 2021 forecast growth to 2.5%
To reduce sustained borrowings pressure, Nigeria requires structural reforms to halt persistent fiscal slippage, analysts said while expressing concerns over the steep rise in overdraft from the Central Bank.
In the first five months, revenue projections underperformed expectations by 45% despite the uptrend in global prices of oil. As of December 2021, the monetary authority overdraft extended to the federal government had jumped to more than N13 trillion due to pressure on government revenue.
The slowdown is coming following FG plan to expend a sizeable amount of capital infrastructures in addition to its bogus recurrent expenditure without looking for alternative strategy including private and public partnership arrangements.
The petrol-dollar powered economy that gets some 90% of its foreign earnings from crude records weak growth in the first quarter at 0.51%. Without a drastic move to ramp up other earnings sources, the dollar shortage might persist, an economist that prefers not to be mentioned told MarketForces.
In a review, Cordros Capital Limited research report said the current fiscal framework characterised by underperformance in revenue targets, rising expenditure and high debt servicing cost is unsustainable.
“We think it would be difficult for the FGN to reduce its reliance on the CBN over the medium to long term, given that the tepid economic conditions will hinder the implementation of much-needed reforms.
“In our opinion, the government will sustain its current expansionary fiscal policy to support economic recovery. As a result, the imbalances in the fiscal accounts are unlikely to show any meaningful improvement.
“However, we think the government must implement structural reforms and fiscal consolidation measures to improve the fiscal position over the medium term”, Cordros said in the report.
Read Also: Weak Consumption, Reduce Imports Halt Inflation Uptrend
Meanwhile, analysts highlighted some of the critical reforms needed to enhance government revenue, moderate the growth in recurrent expenditure, and ultimately improve the management of public resources.
Cordros said the removal of subsidies in the energy sector, increased flexibility in determining rates at the Investors and Exporters window to support oil revenue inflows and boost capital inflows are key reforms that would reflate economic performance.
Also, it added that strengthening the tax administration framework and expanding the tax net to boost non-oil revenue, enhancing the operational efficiency and revenue-generating capacity of Government-Owned Enterprises (GOEs) would help revenue generation.
In addition to that, analysts pitch deliberate efforts to eliminate duplication of roles in MDAs and ultimately reduce the size of the public sector, and improve governance practices and consistency with policy formulations to enhance public-private partnerships (PPP)
Meanwhile, Codros urges FG to step up efforts in addressing security issues in the country.
“For the sake of emphasis, we highlight that the various recommendations in the 2011 report of the Presidential Committee on Restructuring and Rationalisation of Federal Government Parastatals, Commissions and Agencies, under the Chairmanship of Mr Steve Oronsaye are a good starting point in reducing the cost of governance”.
Analysts however preached that preservation of the independence of the CBN through compliance with stipulated rules on overdraft facilities from the apex bank will enhance the credibility of monetary policy.
Nigeria Requires Reforms to Halt Fiscal Slippage – Analysts
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