The Minister of Budget and National Planning, Senator Udoma Udo Udoma, in this interview, speaks on the challenges the Buhari administration is facing to take the nation out of economic recession.
Udoma is, however, optimistic that the economy will be reflated as soon as possible.
A lot of Nigerians are looking up to you and the Minister of Finance to get the economy out of recession. Did we envisage that we are going to be entering a recession?
We started being concerned about it a little while ago, which is last month, and we have been meeting at the Economic Management Team. The reason we are in recession has to do firstly, with the oil price; but oil price alone would not have pushed us into recession. Oil price went down from $110 to about $30 in the first quarter; it is now going up a bit to the 40s; but we had anticipated that, and in the budget, we projected a price of $38. And with $38, we would have generated enough revenue and enough foreign currency to keep the economy on a fairly even keel and then, next year, we start to grow. We thought that the performance this year will be flat and next year we start to grow, but what happened was that the 2.2m barrels of crude oil which we anticipated, we did not get. Because of militant activity, it dropped from 2.2bpd to 1.1bpd. So, half of our revenue went out. That revenue was also the foreign exchange supply because foreign exchange sustains the economy. And when you lose the foreign exchange, you also lose your non-oil revenue because your non-oil revenue depends on the foreign exchange from oil.
So, are you saying that when you were putting together the 2016 budget, it wasn’t envisaged that we could be going into recession?
No, we thought it will be a flat performance but not a recession. If we didn’t have the sudden drop in crude oil production halved from 2.2m barrels to 1.1m, we will not be in a recession. The performance would have been flat this year. It wouldn’t be a stellar performance because we came in with a low oil price and the growth of the economy tracks to oil price. By the first quarter of 2014, the GDP growth rate was 6. 21 percent. You can see the pattern. It has been going down; as oil price came down, it started going down. So, the problem didn’t start today. The problem started at the beginning of 2014, when it started going down. It went down such that, in 2015, the last administration could not even get more than 15 per cent of the budget capital. When we came in, we knew we had a difficult situation, and we said so right at the beginning. Even in my address to the Senate on the budget, I told them: ‘In 2016, tighten your belts because it is going to be a tough year’. So, we expected a very tough year. The figures were clear but not that we were going into a recession.
Some Nigerians believe that b the fact that we started slowly with the 2016 budget contributed largely to where we are today. To what extent has the 2016 budget been implemented?
Now, as far as the recurrent is concerned, the 2016 budget has been virtually fully implemented. The emoluments have been paid in full. We’ve released all the money. At the federal level, all salaries have been released. We have also met all debt service in full. With regards to overheads, we have not met that in full but we are almost there. The problem has been capital. In the capital budget, we planned to spend about N1.8tr, but we’ve only spent about N400b. So, we have not been able to meet up with the level of capital releases. The reason for that is that if you look at the first six months of the year, the revenue performance was N1tr less than what we projected. Given that rate, it means that at the end of the year, there will be N2tr less revenue than we expected. There is no economy; there is no person that can manage that without being where we are today.
You just told us about the performance of the capital budget. Could you put that in percentage so that people will better understand how much we have implemented so far?
It is simple; N400bn out of about N1.6tr that we projected. So, one can say about one quarter of the capital budget and even the releases don’t get in straight away because of procurement processes which we have to meet because we have to follow due process. All the funds have been released to the MDAs; N400bn has been released to the MDAs.
How soon are we likely to see some activities because so many analysts at the Economic (Ministerial) Retreat are saying we should pump a lot of money into the economy and see some busy activities happening?
We completely agree with that and that is why I said the Economic Management Team has been meeting in the last months over the fiscal stimulus to see how we can raise additional revenues. We need to raise additional revenues. To release more money, you need to get the money first. So, we have a fiscal stimulus plan which we have been developing over the last months. We intend to do a number of things. We are looking at asset sales, concessioning, and getting advance payments from licensing rounds and all that. We are targeting to raise between $10 and $15bn, and we have started that process.
Why are we looking for dollars? It is because what we need to charge this economy is actually foreign currency. It is foreign currency shortage that is really responsible for where we are today. So, we have to look for foreign currency. We have a plan already. We have prepared a bill because we want to fast track some of these processes in order to be able to get the money from concessioning and all that. There are two sources of getting these additional funds. One is getting more (oil) production. At that time, we still thought we will be able get more production and get back to 2.2m. We are looking at a strategy to contain the militant activities. We didn’t expect it to be as prolonged as it has been. We are still working on that because if we can contain the militant activity, we are discussing with them and employing other strategy, if we can contain them, we can take production immediately to 2.2m barrels per day. If we do that, we will be able to pump this additional money into the economy.
Are we still producing around 1.1m?
I think it is now moving up because as of yesterday (Thursday), Qua Iboe Terminal had started operating, so we are now moving up. We are working on all fronts at the same time. One is to get oil production back – it is very important. Two is the asset sales, concessioning and all that. Let me give you an example of the things that we are looking at, because these things take a while to put together. We are discussing with General Electric, and I will give that as a practical example; they have already committed to bringing in $2bn into concessioning the existing Lagos-Kano rail and Port Harcourt- Maiduguri rail. They will take them over, revamp them, build coaches here in Nigeria, but the process of getting the thing through is taking time. We have to wait for the various government agencies because there are certain procedures we have to go through. This is why we met and said: ‘Is there a way we can fast track some of these things? Because we need the money today, not in three or four months’ time. So, consequently, we’ve looked at (i) presidential directives that can be issued to fast track that and (ii) taking a bill to the National Assembly so that we can fast track some of these things. For instance, one of the things that is holding up the releases is procurement. The procurement processes are slow. They involve advertising for a certain number of times, six weeks and so on. We are looking for how we can fast track it. But we are law abiding. We don’t want to do anything except by due process and following the law.
Someone said the agencies don’t have funds. Have those funds released being cash-backed?
All the funds released are cash-backed. (But) the funds are not enough. That is the crux of the matter. We need more funds and which is why we have this proposal to raise between $10 to $15bn, bring that into the system and to make sure that our budget is implemented. If the 2016 budget was fully implemented, we will not be where we are today. That is the truth. The 2016 budget had fiscal stimulus built in. We are looking for this money just to improve the budget, not for supplementary. It is to fund the budget, because the budget was very well designed and, when it came out, everybody said so. It was designed to reflate the economy. We said the economy will go into trouble unless it is reflated. We said so when we came out with the budget. We said this budget is designed to do that. We have not been able to implement the budget because of funding constraint and the funding constraint was caused by the dramatic fall in (oil) production.
When we talk of the 2016 budget, what will also come to mind is 2017; can you tell us that it will be ready by October, knowing fully well that the NASS will need about three months to go through that document?
I don’t believe the National Assembly will need three months to go through it. Our plan is to get it to them in October. We are going to work with them and try to encourage and support them so that, before the end of the year, the budget should be passed. We want to do extensive consultation with the leadership and members of the National Assembly to get that support because we are in a difficult economic situation and we cannot do business as usual. We cannot spend three, four months on the budget. We just cannot afford that time. We cannot repeat 2016 in 2017. We can’t do the same thing every year and expect different results. So, we have to work together to achieve it. We will work with the National Assembly, we will seek their cooperation, we will seek their support and I am sure, as patriotic Nigerians, they themselves will come on board to make sure that this budget is passed and is out before the end of the year. Nigerians expect that from us.
When you met with the Senate, you said we will make the turn by the 4th quarter of this year. Do you still have that optimism?
If we can get the money into the system, that is the thing. So, we need to raise the $10 to $15bn that I am talking about and we are working towards achieving that.
So as we speak there is no money?
Until we sell the assets, until we get the approval that we seek from the National Assembly, we will not be able to achieve fully what our intentions are.
You said the FG is in need of money. What are the monies recovered from the Treasury Single Account (TSA) and looted funds recovered from the EFCC for? Are we just recovering for the sake of it?
On the TSA, what we talk about is a flow. It is not that the TSA has recovered a surplus. The TSA is a mechanism for making sure that all payments go through a central point so they can be tracked, but those funds belong to various agencies and they end up being paid into the national treasury. So, the issue of maybe N3trn lying idle in TSA is not correct. The money that has been flowing through, the cumulative amount is what is being spoken about. That money is not lying there idle for us to take. This has been clarified so many times. The Minister of Finance has said so on several occasions and I can’t understand why the issue isn’t still clear. The Minister of Finance said that the amount is a flow; it is what has passed through using the TSA. It is not money sitting down in CBN waiting for us to spend.
On the funds recovered by the EFCC, until the legal processes are completed, we can’t take those funds and start to spend. So, that is part of what the delay is. But we are optimistic that as soon as we can complete the legal processes for the funds, we should be able to inject them into the system.
What about the funds recovered from abroad?
I don’t know which one you are referring to, but most of the recent ones the legal processes have not been completed. That is also being looked at. But one thing I want to emphasize is this, the Economic Management Team meets every single week. We meet on Mondays and we look at the performance of the Nigerian economy, we look at all the indices and we tilt things in order to deal with whatever the trend is. The fact of the matter is that nobody can give you advance notice of a bombing of a facility or terminal. If we have advance notice, we will stop it. So, we cannot plan for sabotage or criminal activities; nobody can plan for that. That is the cause of our current problem.
We can plan for things that we anticipate. We planned for the price of crude oil. If you recall, at the time we fixed $38, people thought we were too optimistic. We went to the National Assembly, they said we should bring it down but we said ‘no’. We have done our projections and extensive consultations internationally and everywhere else and so, we are confident about $38. Now, we have been proven right because the $38 is a reasonable price. So, those projections and assumptions we made have been borne out. However, nobody could have anticipated that we will have short-ins that will bring us down from 2.2 billion barrels to 1.1bn. But we are working on it. We have a team that is responsible for dealing with the militants’ situation. That team of, course, is a different team from the Economic Team, because those have security and other concerns. We consult extensively. Each time we meet as Economic Management Team, at least, from time to time, we invite top economists to come sit with us. We listen to their analysis, we tell them our plans, they give us their feedback. We have been doing this behind the scene, not in the limelight. We have spoken with most of the major economic groups. If you recall, when we were preparing the Medium Term Expenditure Framework (MTEF), we took it to Nigerians, we called the economists. We believe in developing an economy that everybody is part of.
Are you saying there is no basis in the criticism in some quarters that you should consult a lot more?
I think that maybe we have not communicated enough. I will accept responsibility. Not everything we do has been communicated and we will be communicating a lot more. Work has been going on continuously. Even at this Ministerial Retreat, we brought top economists to come and talk to us.
On sale of national assets
The government needs to inject a large dose of funds into the system to get the economy back on track and to faithfully implement those provisions in the capital budget tailored at reflating the economy and aiding the diversification process. The country has lost almost half of its expected revenue and would need to urgently source the shortfall to enable the government to faithfully implement the budget. This unfortunate scenario prompted the Economic Management Team to urgently work out a fiscal stimulus plan to generate immediate large injection of funds into the economy through asset sales, advance payment for license rounds, infrastructure concessioning, use of recovered funds, among others, to reduce the funding gap. The other option would have been to source for additional loans, beyond the level of borrowing already projected for in the 2016 budget. This would not be a wise option as it would raise the level of debt service to an unsustainable level. But the government is exploring several angles in the asset sales proposal including repurchase options, which will make provision for buy-back of those assets when the situation improves.
Our goal is to unlock the economic potentials of the non-oil and high-employment sectors, so as to achieve a sustainable inclusive growth that will ensure that the majority of Nigerians become more productive, thereby reducing poverty. Thus, we are deliberately working towards diversifying the economy by ensuring that the non-oil sector drives the economy because this is the sector that contributes the most to the GDP; and has more capacity to employ. What this means is that we are geared to strategically spend our way out of recession.
Unfortunately, we have not met all our planned expenditures for 2016 due to low revenue out turns. However, we have ensured that the resources that we release are targeted at priorities that will stimulate activities in the economy.
*This interview was first aired on Channels TV.
