Tobi Soniyi and Obinna Chima with agency report
As the states of the federation struggle to meet their obligations to workers, contractors, other creditors and provide social services, the federal government has told their governors to look inwards to generate revenues they would need to run their states in view of declining oil prices.
The Minister of Budget and National Planning, Senator Udoma Udo Udoma, said this Thursday at the State House in Abuja at the end of the National Economic Council (NEC) meeting presided over by Vice-President Yemi Osinbajo.
He was accompanied at the briefing by the Governors of Sokoto State, Aminu Tambuwal; Benue State, Samuel Ortom and Taraba State, Darius Ishyaku.
In addition to improving on their internally generated revenue (IGR), the federal government also called on state governments to block waste and be prudent in the management of their resources.
His statement effectively put paid to the attempt by states to seek for another bailout from the federal government.
The states, through the Chairman of the Nigerian Governors’ Forum (NGF) and Governor of Sokoto State, Abdulazeez Yari, had recently cried out over their inability to sustain the national minimum wage and threatened to either review it or sack workers. He also said the states would be approaching the federal government for a solution to the dire situation in most states.
But in response to the plea by the states, Udoma yesterday said: “I made a presentation to the council on the Medium Term Expenditure Framework (MTEF) and the Fiscal Strategic Paper (FSP).
"The report highlighted the government's fiscal policy strategy and direction for the next three years.
“We also briefed council about government revenue and expenditure projections for the next three years. We briefed council on our view in terms of the global outlook and macroeconomic framework and the key assumptions underlining our projections.
“The presentation urged the states to adopt the MTEF and FSP which has now been approved by the National Assembly, which is the only body that can approve it.
“But we urged them to adopt it as a basis for the development of their annual budgets. We also emphasised the need for states to be guided by the assumptions of the MTEF and the need for states to be conservative in their expenditure and their expenditure projections for 2016-2018, in view of declining oil prices.
“We also urged states to look towards enhancing their internally generated revenues and blocking financial leakages in the system and generally we emphasised the need for planning and for the federal and state governments to work very closely because we are dealing with one economy.”
In his briefing, Ishaku said the council was also briefed by the Accountant General of the Federation, Mr Ahmed Idris, on the Excess Crude Account (ECA).
He said: “The Accountant General of the Federation reported to council that the Excess Crude Account (ECA) stood at $2.257 billion at the end of November 2015.
“He also reported a slight change over the previous balance owing to the accrued interest of $599,137,467 due to the account.
“We were also briefed on the report of the federal government agencies that collect revenue in foreign currencies but remit the monies in naira into the Federation Account, which is not allowed.
“So the Ministry of Finance is working on the details to pass it to the council with a comprehensive report on the agencies that are involved. This will be made known to the public later.”
Also speaking, Ortom said the council was given updates on recoveries from monies stolen by the late military head of state, General Sani Abacha, popularly known as the Abacha loot.
“We were also briefed on updates on the Abacha loot in council. The Accountant General of the Federation reported that the dollar account as at November ending 2015 had a balance of $26,389,000 while the pounds sterling account had a balance of £19,000,033,” he disclosed.
Tambuwal, in his remarks, said the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, briefed the council on the central bank’s monetary policies.
“The CBN governor gave an update on foreign exchange management and told the council the challenges being faced by many countries as a result of the global economic slowdown.
“He also reported that the drop in oil prices had caused serious pressure on Nigeria’s reserve which currently stands at $29 billion.
“He also briefed the council on other monetary policies as follows: The reduction of the cash reserve ratio from 25 per cent to 20 per cent; the measures introduced in the forex market and bank verification numbers (BVN); a measure being considered to introduce debit cards for travellers instead of giving them dollar cash in order to reduce the cash that is used for illicit businesses; and also looking at options to diversify the economy,” Tambuwal said.
Asked if President Muhammadu Buhari would go to the National Assembly to present the budget, Udoma said that that would be made public in due course.
The governors were also asked how they would generate revenue internally in view of the difficulties they might encounter with expanding their tax base in their respective states, but none of the governors volunteered a comment.
The NEC meeting occurred just as the naira continued its free fall on the retail segment of the foreign exchange market after the CBN advised commercial banks to limit how much customers can spend abroad using their debits cards, two bank executives said yesterday in the latest crackdown on dollar demand to save dwindling foreign reserves.
The directive sent the naira to a new low of between N274 and N280 to the dollar in volatile trading at the unofficial market yesterday, but closed at N196.97 at the interbank market.
The naira has been sinking to new lows at the retail bureau de change segment of the market, as oil prices fall and the central bank tries to curb demand to conserve its dwindling foreign reserves, which are down 14.6 per cent year-to-date.
“The central bank is not providing us with dollars to settle those trades and local banks are limited in their ability to source dollars, so we don't want to end up with a settlement risk,” one senior banker told Reuters, asking not to be named.
He said the central bank advised domestic lenders during an industry meeting on Friday to limit the usage of cards abroad by their customers based on their individual reserves and capacity to secure dollars, especially for those without foreign affiliates.
This week, commercial banks cut the amount individuals could spend abroad to between $100 to $150 a day or $12,000 annually, down from the $50,000 set by the central bank in April, two banks said.
Keystone Bank, Wema Bank and Skye Bank said in letters to customers that the new limit takes effect immediately. The regulator had in April cut the limit from $150,000.
Owing to the new measures, individuals have put more pressure on retail money exchange agents to source dollars, weakening the naira on the unofficial market, Aminu Gwadabe, the head of Nigeria's bureau de change association, told Reuters.
The US Federal Reserve raised interest rates for the first time in almost a decade on Wednesday and signalled four more hikes were likely next year, a move that would increase the dollar cost of borrowing for emerging markets, analysts said.
Plunging oil revenues, which make up 90 per cent of Nigeria's foreign currency earnings and more than half of government income, have hit public finances and the naira, leaving businesses struggling to get dollars.
On Wednesday, the central bank cut the amount of dollars it sold to each of the 2,270 retail money exchange brokers that participated in this week’s sale to $10,000, down from the $30,000 each it sold last week. It offered $84.5 million at a similar sale two weeks ago.
In another development, the Minister of Finance, Mrs. Kemi Adeosun, has said that the federal government will consider issuing international debt early next year for the first time since 2013 as it prepares to send a record spending N6 trillion budget to the National Assembly.
Buhari will probably present the 2016 budget to lawmakers on Tuesday, Adeosun said in a phone interview with Bloomberg yesterday.
It will be based on the Medium Term Economic Plan and Fiscal Strategy Paper announced this month, which projects spending to increase about 25 per cent from 2015 to N6 trillion. The deficit will more than double to N2.2 trillion or 2.2 per cent of gross domestic product.
“We need to stimulate the economy because we cannot afford this downturn to be excessively prolonged,” Adeosun said in Abuja.
“We think we have the headroom to borrow. We’re going to mix it between local and foreign debt. We’re talking to multilateral agencies already and we’re at an advanced stage. Then we’ll look at the foreign capital markets.”
Adeosun didn’t mention how much would be raised in a possible sale. Nigeria’s fairly low ratio of debt to GDP means it has the ability to increase borrowing to plug the gap, she said.
Africa’s biggest oil producer derives about two-thirds of government revenue from the commodity and has seen its finances shrivel as prices have fallen to below $40 a barrel from over $115 in June 2014.
Nigeria has $1.5 billion of dollar bonds outstanding and has tapped the market twice – in 2011 and July 2013. Yields on its $500 million of securities due in July 2023 fell 2 basis points to 8.58 per cent yesterday at 8.31 am in London. They’ve risen by more than 300 basis points since May as oil prices have fallen further and investors pulled money from emerging markets in anticipation of an interest rate hike in the US.
Nigeria has a debt-to-GDP ratio of 12 per cent, compared with 57 per cent for Angola and 48 per cent for South Africa, according to the International Monetary Fund (IMF).
But Nigeria’s economic growth is expected to slow down to 3.2 per cent this year, the slowest pace this century, according to a Bloomberg survey of economists.
The medium term spending plan projects new borrowing by Nigeria’s government next year of N1.84 trillion, about one-third of which will be foreign debt while the rest will be funded domestically. The budget will be based on an oil price of $38 per barrel.
Nigeria expects to boost non-oil revenue by N1.6 trillion in 2016 to help make up for the shortfall in earnings from crude exports. About N1 trillion of that increase may come from forcing government agencies and ministries to remit the funds they generate to the Consolidated Revenue Fund (CRF), Adeosun said.
“Compliance has been very poor,” she said. “Some agencies have never remitted anything.”
She will also look to cut overhead expenditure of everything from travel to entertainment across all levels of government. A unit dedicated to auditing public sector payrolls will soon be set up to root out ghost workers and duplicated salaries, she said.
“We spend about N1.7 trillion on the payroll,” she said. “If you’re spending that amount on something, you should be auditing and reviewing it. That’s a process we are just about the finalise.”
The budget will not include income from regulatory fines, such as the $3.9 billion levied on MTN Group Ltd., she said. Johannesburg-based MTN, Africa’s largest phone company, is contesting the fine for failing to cut off around five million unregistered mobile-phone customers.
While the government is right to increase spending on items such as infrastructure, it may struggle to fill its projected fiscal gap, according to Chernay Johnson, an analyst at Credit Suisse Group AG in Johannesburg.
“We do not believe that non-oil revenue growth will be sufficiently robust to cover the large shortfall due to low oil-related revenue,” Johnson said in a research note on Tuesday.
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