The old saying – “Cut your coat according to your clothe” appears to be one thrown to the wind by the Federal Government and indeed the three tiers of government in the country. One would have expected that as revenue from oil dwindles, government would become more prudent.
But the case with the country’s politicians is like a prodigal son who does not know when to stop his excesses until it is too late and has to share food with pigs.
When the alarm was raised that government should save for the raining day, the three tiers of government did not pay attention. Now that it is very clear that “there is fire on the mountain”, governments are still maintaining status quo with relaxed nonchalance.
With careless abandon, about 47 per cent of this year’s budget has been frittered away on payment of fuel subsidy alone, and that is mostly for last year’s arrears.
This is in spite of the fact that oil price which has been on the decline, dipped by five per cent in June. Bismarck Rewane, Chief Executive Officer of Financial Derivatives Company said on a year to date basis, Bonny Light has shed 29 percent or $35 from its peak of $130 per day (pb).
He said the impact on revenue for Nigeria is magnified. In April oil revenue declined 7.1 percent to $4.72 billion, while net inflow of foreign exchange (forex) also dropped sharply to $1.49 billion.
Also, based on speculative attacks on the naira, forex sales for June went up to $2.75 billion. The increased demand for the naira is hugely as a result of intensified efforts by marketers to source foreign exchange for the importation of petroleum products.? The only good thing is that forex revenue decline is partially offset by United States dollar appreciation.
The U.S. dollar has gained over 5.97 percent against the basket of world currencies in the last quarter, but Nigeria`s external reserves came down marginally to $36.6 billion.
Rewane said the country`s fiscal balance threatened by potential decline in revenue and an inelastic expenditure profile. According to him, N2.1 trillion has been spent so far on fuel subsidy representing 47 percent of 2012 budget, clearly an unsustainable item of expenditure.
?Rewane was short of word on how to fund the subsidy going forward. “Look, the entire budget is N4.3 trillion, and in less than six months, N2.19 trillion is already spent. Now, if the amount is doubled, that means about N4.2 trillion will be spent, leaving barely N100 billion.
?“This is a warning signal, an alert that the all is not well with the economy. It appears these guys (the cabal) have come back with vengeance on the economy”, said Rewane.
?Razia Khan, analyst with Standard Chartered Bank, London said, “either a supplementary budget, which seems increasingly plausible or – I suppose – the ‘fudge’ solution, which is simply to run up new arrears. This would only be a short term solution at best.?
?“At some point, there will have to be renewed discussions over the sustainability of the subsidy, especially if oil earnings fall because if output disappointment”.
?Mazi Okechukwu Unegbu, former president of the Chartered Institute of Bankers of Nigeria (CIBN) said, the National Assembly must ask the executive to give detail account of how the N2.19 trillion fuel subsidy was spent.
?Unegbu further said, aside from explaining the differing amount given on subsidy payment, the National Assembly should also ask the federal government to bock loopholes in the thieving subsidy business as way forward.
Samir Gadio, analyst with Standard Bank, London said, “whether there is a supplementary budget or not, the risk is that Federation Account proceeds will be further depleted to service the subsidy which will prevent an accumulation of fiscal savings.
“Clearly the subsidy scam exposed earlier this year put a spotlight on the inefficiencies and corruption related to this system. Even though the lower oil price in recent months should reduce the nominal amount effectively disbursed to service the subsidy, a large bulk of the funds provisioned in this year’s fiscal framework (N888 billion) has already been spent to repay 2011 arrears (N451 billion) while it remains unclear whether previous excesses have been fully addressed”.
The matter is made worse, knowing full well that lots of subsidy debts are yet unattended to. According to Taofiq Lawal, spokesman of Nigerian Independent Petroleum Company (NIPCO) Plc, the Petroleum Product Pricing Regulation Agency (PPPRA) is yet to pay them the outstanding subsidy for the first and second quarters of this year (2012) that runs into billions of naira.
The NIPCO spokesman said the federal government should raise extra-budgetary allocation to help meet up with the payment for this year since that was what the government did in 2011.
Fidel Pepple, the acting General Manager of the Nigerian National Petroleum Corporation (NNPC), said, the corporation like other marketers do not know how government intends to source for money to pay outstanding, both for this year and last year.
He said, it is left for the PPPRA which will scrutinise and vet every document before recommending for payment if the papers are right.
Akin Fatuke, spokesman for Mobil said government should re-organise it’s priorities if the government want to continue to fund subsidy.
Fatuke warned that if the issue is not properly addressed, this could lead to scarcity of Premium Motor Spirit (PMS).
On frittering savings, Gadio of Standard Bank, London laments that Angola, which produced around 1.7 million barrels per day (mbpd) of crude oil in 2011, compared to 2.1 million barrel per day (mbpd) for Nigeria, has managed to increase its foreign exchange reserves by 132.4 percent, from $12.5 billion in October 2009 to $33.1 billion in May 2012, whereas in the same period (2009 – 2012) Nigeria’s foreign exchange reserves (forex) fell by 16.4 percent, moving from $45 billion to $37.6 billion.
“The difference between Angola and Nigeria is obviously the direction in fiscal policy,” Gadio reportedly said.
“Unless the Sovereign Wealth Fund (SWF) is effectively launched in the near term in Nigeria, and fiscal excesses and inefficiencies (including the fuel subsidy) seriously addressed, Angola will probably overtake Nigeria as the Sub-Saharan Africa country with the largest forex reserves, excluding South Africa.”