Nigeria’s budget implementation faces funding crisis as oil, non-oil revenues shrink

Nigeria’s federally-collected revenue (gross) in the month of May 2017 was estimated at N458.42 billion falling below the monthly budget estimate of N894.76 billion by 48.8 percent and lower than the receipt in April 2017 by 13.4 percent, according to the Central Bank of Nigeria monthly economic report for May.

The fall in revenue relative to the monthly budget estimate is attributed largely to the short fall in both oil and non-oil revenue components, which has raised concerns about the implementation of the 2017 budget signed into law just a month ago.

Specifically, gross oil receipts at N238.09 billion or 51.9 per cent of total revenue was lower than the monthly budget estimate of N449.62 billion by 47.0 per cent.

It was also below the April collection of N303.43 billion by 21.5 per cent.

The decline in oil revenue relative to the monthly budget estimate was attributed to the short fall in revenue from crude oil and gas exports and PPT/Royalties.

On the other hand, at N220.33 billion or 48.1 per cent of total revenue, non-oil revenue was below the monthly budget estimate of N445.14 billion by 50.5 per cent, which is also below the April collection of N225.71 by 2.4 percent.

The poor performance relative to the budget was due to the effect of the slowdown in general economic activities, which impacted negatively on most of the components of the non-oil revenue.

Analysts and concerned institutions have therefore raised the alarm that if the trend was to continue until year-end, there would be obvious implications for capital spending since recurrent items, notably salaries cannot easily be cut.

Analysts at FBNQuest, a research firm, first raised the alarm about three weeks ago, remarking that revenues for the prosecution of the 2017 budget were already running below projection.

On its part, the Nigeria Extractive Industry Transparency Initiative (NEITI) has remarked that all of the country’s oil savings since the inception of its savings programme cannot fund 20 percent of 2017 budget.

Waziri Adio, executive secretary, NEITI, noted this in his organisation’s second occasional paper series.

He said that Nigeria has about three decades of experience in implementing different oil revenue funds, that attempts at oil revenue savings have been plagued by contested legal frameworks, governance issues and inadequate political will.

“Nigeria has one of lowest natural resource revenue savings in the world. The balance in the three funds (0.5% stabilization fund, ECA and NSIA) is less than $3.9 billion, not enough to fund 20 percent of 2017’s federal budget.

“Nigeria’s $1.5 billion sovereign wealth fund is one of the lowest in the world, has one of the worst ratio to annual budget (10%), and one of the lowest SWF per capital ($8), better only than war-torn Iraq and crisis-hit Venezuela, but not by much,” he said.

NEITI added: “In contrast, Norway, a country of 5.2 million people (2.8% of Nigeria’s 186 million people) has a sovereign wealth fund worth $922 billion (which is 23,641% of the $3.9 billion balance in Nigeria’s three oil revenue funds).”

In simpler terms, if Nigeria’s oil savings were shared across the country, each citizen will have access to only $8, after over 60 years of oil exploration, which contrast with countries like Norway, Kuwait and Botswana at $185,000, $148,000 and $14,400 respectively.

Between 2005 and 2015, NEITI said $201.2 billion accrued to ECA but $204.7 billion was withdrawn from the ECA during same period, indicating that withdrawal was 102 percent of deposit.

To buck this prevailing Dutch-disease, NEITI recommends that the Federal Government and states government “should seek speedy resolution at the Supreme Court on the constitutionality of remittances to the ECA and the NSIA.”

However, the decision of the Federal Government to look beyond savings from oil to fund the 2017 budget have been tactically proven to be a wise one as the funds already received close to the projections for the debt market.

The Federal Government, earlier in the year, through the Debt Management Office (DMO) planned to raise N1.25 trillion in local debt for the domestic financing of the 2017 budget and this received the support of stakeholders in the sector who are of the opinion that it is achievable.

So far, N850 billion have so far been collected from its 2017 bond issuance, which seems to have made the projection a reality.

The DMO is operating within a comfortable zone in ensuring that its contribution to budget financing is enough to counter shocks likely to come from the impact of continued slide in the price of crude to Nigeria’s realization of its 2017 budget estimates.