The Federal Government, on November 16, announced a package of austerity measures as part of fiscal adjustments designed to mitigate the negative impact of lower global oil prices on the Nigerian economy. The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, who unveiled the measures, explained that the belt tightening initiative is the first of other policies that the government intends to implement if the fall in oil prices persists. Oil prices have declined by more than 30 percent since mid-June, this year. Even so, oil market forecasts indicate that the lower prices may well continue into 2015. This is also in view of the fact that the price of Nigeria’s premium oil, Bonny light crude, has dropped to as low as $77 per barrel.
One of the immediate results of this is a 6 percent downward revision in the 2015 Budget benchmark to $73 per barrel, from the earlier $78pb on which the budget was formulated. The new benchmark is based on the 2015-2017 Medium Term Expenditure Framework(MTEF)and Fiscal Strategy Paper. Nigeria is expected to produce 2.27 million bpd next year, with a projected revenue of N6.8 trillion. The bad news for Nigeria is that successive governments have not been prudent enough to save for the “rainy day”. Neither were they able to build up external buffers in times of dwindling revenue to government.
Among the austerity measures is the restriction on foreign travel by public officials. Henceforth, foreign trips will be permitted only when they become compellingly, while local travel will also be curtailed drastically. However, the measures will not affect salaries of public sector workers as well as key initiatives in education, health and other critical areas vital to the development of the country. Government also said that it has started compiling the list of luxury goods that are currently part of its expenditure, with the aim of pruning such down. Also, the Central Bank of Nigeria (CBN) is said to have commenced initial implementation of some of the monetary adjustments. It also released more details of government’s fiscal plans at its recent Monetary Policy Committee (MPC)meeting scheduled.
There is no doubt that these austerity measures are necessary. Since oil proceeds account for over 70 percent of Nigeria’s fiscal revenue, a shortfall in the projected benchmark inevitably affects revenue projections. For instance, financial records for the Second Quarter (Q2) of this year show that government’s retained revenue decreased to N864bn from N912bn in the first quarter(Q1), while September federal allocations declined by 4 percent.
However, government should exercise extreme caution and introspection in the implementation of these measures in order not to imperil the wellbeing of the people. The bigger concern is that these unsettling events occurred when oil prices were above $100pb., how much more now that the price hovers between $75 and $79pb.
The volatility in the global oil market gives cause for concern, especially for countries like Nigeria which depend largely on oil for their sustenance. It is a wake-up call for government to diversify the economy. through alternative and additional source. In this connection, it is time to channel energy to non-oil sectors as potential revenue earners.
Agriculture and solid minerals remain two important sectors that need to be better explored than is being done now.
If these austerity measures are to yield the intended results, the belt tightening should start with government and its top officials who should be more prudent and financially disciplined. The situation also presents an opportunity to eliminate wastages in government.
While we welcome some of the austerity measures, government should not press the panic button that could erode confidence in the economy or introduce measures that could end up as an exercise in futility. Government’s suggestion to increase taxes through the Federal Inland Revenue Service (FIRS) as one of the means to fund the budget deficit should be well thought out because of the low tax compliance of many companies in the country.
Again, inflation is a major risk of running a budget deficit to spur growth. The tempers of these times require all hands on deck. Utmost caution is advised, because austerity could further enrich the affluent while impoverishing the average citizens. It can also weaken aggregate demand, deflate an already fatigued economy such as ours and lead to closure of industries, with attendant unemployment. These are situations that Nigeria can ill-afford at this critical time that general elections are less than three month away. The political and socio-economic implications could be incalculable.
Therefore, prudent management of resources as well as renewed focus on the non-oil sectors have become imperative to build a future with less dependence on oil as the main source of government revenue.
