Nigeria Projects 2020 Oil Revenues Will Crash to N1.1trn, Down From N5.5trn

On Tuesday, Nigeria’s Ministry of Finance, Budget and National Planning and the UK Department for Internal Development (DFID) held a citizen’s dialogue session focused on Nigeria’s response to the fall in oil prices and the COVID-19 pandemic. The Nigerian panel was led by the Minister for Finance, Budget and National Planning, Zainab Ahamed, who was ably supported by Clem Agba (Minister of State, Budget and National Planning), Ben Akabueze (DG Budget Office of the Federation), and also had Laoye Jaiyeola (CEO, Nigeria Economic Summit Group). Below are some of the key takeaways from the dialogue session.

1. Government expects Nigeria’s GDP to contract by 3.5% YoY in 2020
2. Oil earnings are now projected by government to decline by a staggering 90% in 2020
3. Estimated net oil & gas revenue available for Federation Account Allocation Committee (FAAC) distribution is now forecasted to fall by 80%, that it is estimated to be 80 per cent lower at only N1.1 trillion (vs. N5.5 trillion previously). This will be despite a N649 billion reduction in allowable fiscal deductions by NNPC for federally funded projects/expenditures.

Specifically, the projected PMS under-recovery (petrol subsidy) has been reduced from N457 billion in the 2020 federal budget to zero.

Importantly, oil production now projected at 1.7mbpd (vs. 2.18mbpd previously indicated).

The Nigerian government says it now expects oil prices in 2020 to average $20 per barrel (vs. the budget benchmark of $57 per barrel)

Average production cost of Nigerian crude has been revised downward to $28 per barrel from $33 per barrel (with implications for Petroleum Profit Tax).

Take note that a severe outbreak of COVID-19 in Nigeria could magnify the impact of low oil price and weaker domestic crude production.

4. According to government, Customs revenue is now projected at only N1.2 trillion in 2020 (vs. N1.5 trillion previously)
5. The amount accruable to VAT pool account now forecasted at N2.0 trillion in 2020 (vs. N2.1 trillion previously)
6. Amount accruable to federation account now projected at N3.9 trillion (vs. N8.6 trillion previously)
7. Projected federal government receipt from federation account for 2020 is now put at N2.4 trillion (compared to N4.8 trillion previously)
8. States and local governments are now likely to receive only N2.1 trillion and N1.5 trillion, respectively from FAAC (compared to N3.3 trillion and N2.5 trillion, respectively, in previous estimates).
9. Projected N5.6 trillion budget deficit to be financed through privatization proceeds (N126 billion), but no details were provided;drawdowns from FGN Special Accounts (c.N260 billion), bilateral/multilateral drawdowns (N387 billion), and new borrowings estimated at a whooping N4.6 trillion.
10. The government expects debt service pressure to be eased by significant moratoriums on new loans. For instance, the IMF’s RFI of $3.4 billion which has now been disbursed to the Central Bank, comes with three years moratorium; and expected deferrals of current debt service obligations until macro conditions improve. Again no details provided as to whether this has been agreed by creditors.
11. As part of measures to alleviate the impact of COVID-19, the government has set up an Economic Sustainability Committee to, among others, assess systemic vulnerabilities and develop programs that would make the expected recession short-lived and ensure sustainable long-term growth
12. Measures are underway to strengthen agricultural value-chain with strategic focus on land acquisition, road networks, and funding. Government also plans to offtake agro-products when market conditions are unfavourable
13. Government is looking at funding supports for the aviation sector
14. It was disclosed during the dialogue that the president Muhammadu Buhari is likely to decide on land border closures after the current health crisis. Negotiations with neighboring countries have been smooth

15. Recall that although a similar set of revenue challenges were faced in 2016, Nigeria currently has significantly lower (or better still no) fiscal buffers. In view of the challenges, government has approved the integrated policy framework recommended by the CMC and adjustments to the 2020 budget
16. The budget office is finalizing a revised 2020-2022 Medium Term Expenditure Framework and Strategy Paper (MTEF/FSP) as well as an amendment to the 2020 Appropriation act

According to Nigerian Economic Summit Group NESG, Nigeria needs N10.1 trillion worth of interventions but current intervention capacity stands at N4.5 trillion. Again, no details were provided. However, the
implied funding gap of N5.6 trillion is likely to be covered by medium to long term domestic borrowing as well as
external borrowings (possibly from World Bank, IMF, IFC, AFDB)

Quantitative easing

Note that total announced stimulation (FG, CBN, e’tal) currently stands at N4.5 trillion or 3.1% of GDP (vs. 10.0% of GDP in South Africa).