Abuja and Lagos — Nigeria's oil revenue target fell by N125.52 billion in the first quarter (Q1, 2020) to N940.91 billion, according to figures released yesterday by Minister of Finance, Mrs. Zainab Ahmed. The shortfall, attributed to the double whammy of the headwind caused by the COVID-19 pandemic and the slump in oil price due to a sharp drop in demand and price war between two powerful producers, Russia and Saudi Arabia, representing a 31 per cent of the prorated oil revenue target.
Data from the National Bureau of Statistics (NBS) also showed inflation hitting a two-year high at 12.34 per cent.
Besides, the World Bank has projected that based on its assessment of Nigeria's economy, the country would plunge into a recession.
But it has proposed a relief package of $1.5 billion to keep the 36 states of the federation, threatened by a fiscal crisis, afloat.
Ahmed, who briefed reporters at the end of the National Economic Council (NEC) meeting, presided over by Vice President Yemi Osinbajo in the State House yesterday, expressed concern over the effect of the revenue shortfall on the federal government's efforts at fighting poverty.
According to her, Nigeria's poverty rate, put at 40 per cent, may increase with the drastic reduction in revenue.
She added that the economic situation would be worsened with the gross domestic product (GDP) growth expected to contract by -8.94 per cent this year.
However, she said if the measures being put in place to grow the economy works, the contraction might be only by -4.4 per cent without fiscal stimulus.
The minister explained that with effective fiscal stimulus in place, the situation might bring the contraction down to as low as 0.5 per cent.
She said with the activities of different presidential committees set up by President Muhammadu Buhari to evolve measures aimed at cushioning the effects of the pandemic on the economy, the federal government had resolved to support states by suspending various deductions of debts they owe the federal government.
She explained: "On the economy, COVID-19 has resulted in the collapse of oil prices. This will impact negatively, and the impact has already started showing on the federation's revenues and on the foreign exchange earnings. Net oil and gas revenue and influx to the Federation Account in the first quarter of 2020 amounted to N940.91 billion.
"This represented a shortfall of N125. 52 billion or 31 per cent of the prorated amount that was supposed to have been realised by the end of that first quarter. Forty per cent of the population in Nigeria, today, are classified as poor. The crisis will only multiply this misery.
"The economic growth in Nigeria, that is the GDP, could in the worst-case scenario, contract by as much as -8.94 per cent in 2020. But in the best case, which is the case we are working on, it could be a contraction of -4.4 per cent if there is no fiscal stimulus. But with the fiscal stimulus plan that we are working on, this contraction can be mitigated and we might end up with a negative -0.59 per cent.
"As a result of that, the president set up the Presidential Economic Sustainability Committee in addition to the COVID-19 Response Committee that has been set up, the presidential task force that is chaired by the SGF as well as the Crisis Management Committee that I chair.
"The federal government is committed to supporting the financial viability of states, including the suspension of payments in respect of commitments, debts that have been secured with ISPOs by the states at the federal levels. So, we have already implemented suspension of deductions of a number of loans that have been taken by the states from April and also in May."
Ahmed noted that some of the measures proposed to stimulate the economy so far include the approval of N500 billion to support healthcare facilities as well as the proposed relief to taxpayers and incentives meant to encourage employers to retain and recruit staff during the lockdown.
World Bank Predicts Nigeria's Descent into Recession
The minister stated that the World Bank country director in Nigeria who was invited to the meeting told the council about the bank's assessment of Nigeria's economy. She added that the pandemic would imminently plunge the country into a recession.
She said the Bretton Wood institution's representative told the council that it had proposed to offer Nigeria some relief package, including a $1.5 billion fiscal support to states to be disbursed at the end of September.
Ahmed said with the development, the 36 states of the federation would get between N150 billion to N200 billion.
According to her, "We also had discussions with the World Bank. The World Bank Country Director was invited into the meeting and he spoke to the meeting in respect of their assessment of the impact of COVID-19 on the economy and also their review of the measures that the government has taken.
"This package also includes the increase in the social register by one million households to 3.5 million for cash transfer programmes and palliatives and other social safety net programmes.
"The World Bank maintains that the impact of the COVID-19 on Nigeria will lead to severe amplified human and economic cost, which will move the country into a recession. The World Bank planned a proposed package for immediate fiscal relief for the federal government.
"This will also involve policy-based budget support for the federal government, focusing on measures to maintain macro-financial stability and create fiscal space for proposed stimulus. The World Bank package has also got a proposal of $1.5 billion for the states and this package will be dedicated to the states. And it will be a programme for results which the states are already used to implementing.
"So, the immediate fiscal relief for the states, as stated in the presentation, will include the acceleration of an existing programme to enable disbursement by the end of September. So, the proposed $1.5 billion plan, by end of September, will have been disbursed to the states.
"We are looking at an average of between N150 billion to N200 billion based on the plan to the 36 states. These are states that have already made some particular commitments and achievements so that they will be able to get immediate disbursements of parts of these funds."
Ahmed, who noted that cases of COVID-19 infection have continued to rise in the country unabated said with over 7,000 cases already recorded by the National Centre for Disease Control (NCDC), the situation could grow worse to 300,000 incidences by August.
She also gave the balances in the federation accounts as at May 21, 2020 as $72.04 million in the Excess Crude Account (ECA), N39.337 billion in Stabilisation Account and N125.19 billion in the Natural Resource Development Fund Account.
Inflation Hits Two-year High
Inflation has continued its uptick, rising to a two-year level of 12.34 per cent in April.
The last time inflation was around this level was in April 2018 when it was 12.48 per cent.
The Consumer Price Index (CPI), which measures inflation further increased to 12.34 per cent (year-on-year) in April compared to 12.26 per cent in the preceding month, according to NBS.
However, experts said it was necessary to stimulate farmers to boost food production in the coming months considering that the borders might not be opened soon due to the impact of the COVID-19 pandemic.
The composite food index rose to 15.03 per cent compared to 14.98 per cent in March.
According to the CPI figures for April, which was released yesterday, the 0.08 per cent uptick in the headline index in April followed increases in all the categories that determine inflation, including the food index and core inflation.
The all-items-less-farm-produce or core inflation, which excludes the prices of volatile agricultural produce also rose to 9.98 per cent during the review period, up by 0.25 per cent when compared with 9.73 per cent recorded in March.
NBS attributed the rise in the food index to increases in prices of potatoes, yam and other tubers, bread and cereals, fish, oils and fats, meat, fruits and vegetables.
Conversely, core inflation was fuelled by the highest increases in prices of bicycles, passenger transport by road, passenger transport by sea and inland waterways, paramedical services, hospital services, pharmaceutical products, medical services, motorcycles and major household appliances whether electric or not.
The urban inflation rate increased to 13.01 per cent (year-on-year) in April from 12.93 per cent recorded in March.
The rural index also rose to 11.73 per cent from 11.64 per cent in the preceding month.
It's feared that the continued uptick in the headline index poses growing concerns to the monetary authority, which is saddled with the mandate of price stability but is even more worrisome given that it increases the cost of borrowing in the economy.
With the Monetary Policy Rate (MPR) at 13.5 per cent, the risks of rising inflation have heightened macroeconomic concerns.
The headline index has assumed a downward direction in recent consecutive months when it dropped in January 2019 to 11.37 per cent from 11.44 per cent in December 2018.
The headline index further reduced to 11.31 per cent in February and 11.25 per cent in March, but resorted to the upward trajectory in April when it climbed to 11.37 per cent- and further to 11.40 per cent in May- before falling to 11.22 per cent in June, 11.08 per cent in July, 11.02 per cent in August before returning to 11.24 per cent in September, 11.61 per cent in October and 11.85 per cent in November and 11.98 per cent in December 2019.
It further climbed to 12.13 per cent in January 2020, 12.20 per cent in February,12.26 per cent in March and now 12.34 per cent in April.
Oil price hits $36 two-month high as demand recovers
Oil prices rose yesterday to their highest since March 11, supported by lower United States' crude inventories, supply cuts and recovering demand as governments ease restrictions on people's movements imposed due to the COVID-19 crisis.
Crude prices had slumped earlier, with the global benchmark, Brent, hitting a 21-year low below $16 a barrel in April as demand collapsed.
But with the relaxation of the lockdowns by governments, rising fuel use and more signs that the supply glut is being tackled, Brent has since more than doubled.
Brent crude for July yesterday rose $1.17, or 3.3 per cent, to $36.92 per barrel, while the United States' West Texas Intermediate (WTI) crude climbed 96 cents, or 2.9 per cent, to $34.45.
Both benchmarks are at their highest since March 11, following the gradual easing of the lockdowns.
Bloomberg had reported that summer weather was enticing much of the world to emerge from coronavirus lockdowns.
Shops and restaurants were all set to reopen in Italy, while other centres of the outbreaks such as New York and Spain gradually lifted restrictions.
Apart from the lifting of restrictions on movement by countries, which had increased fuel use and enhanced crude demand, lower United States' inventories have also helped to reduce oil glut and help in price recovery.
Production is also falling as US energy firms cut the number of oil and natural gas rigs operating in the country.
In the latest sign the supply glut is easing, US crude inventories fell by five million barrels last week. Analysts had expected an increase.
Also, there is evidence of recovering fuel use.
British airline, EasyJet, plans to restart some flights on June 15, pointing to higher jet fuel demand.
Physical crude markets, at historic lows just weeks ago, are also rising.
Also supporting oil prices are production cuts by the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, a grouping known as OPEC+.
The world's top exporter, Saudi Arabia, had announced that it would cut an additional one million barrels per day in June, while OPEC+ wants to maintain existing oil cuts beyond June when the group will meet.
Kuwait and Saudi Arabia had agreed to halt oil production from the joint Al-Khafji field for one month, starting from June 1, Kuwait's Al Rai newspaper had reported.
OPEC, Russia and other allies, known as OPEC+, agreed to cut supply by a record 9.7 million barrels per day (bpd) from May 1 to support the market.
So far in May, OPEC+ has cut oil exports by about 6 million bpd, according to companies that track the flows, suggesting a strong start in complying with the deal. OPEC has disclosed that the market has responded well.