By Dr. Boniface Chizea
There have been commendable sound bites about mid-term review of Budget 2020. According to the Minister of Finance, Zainab Ahmed, her Ministry did give an indication that there will be mid-year review of the Budget 2020. And as she observed that considering that the oil market has gone bearish following the impact of Coronavirus, subsequently renamed COVID-19 by World Health Organization, that there might be the imperative for a review of Budget 2020 as the benchmark price of oil at 57 dollars per barrel is certainly no longer realizable.
But now factoring in the devastating effect of COVID-19 as it has impacted life in many countries of the world leading to shut down in most cases to manage the spread of the contagion coupled with the failure of OPEC to reach agreement at its recent meeting in Vienna on Thursday March 5, 2020 which has now unfortunately degenerated to a price war as both Saudi Arabia and Russia contest for market share with Russia along the lines also intent on teaching the Shale oil producers some lessons; world economic environment couldn’t have been more chaotic, volatile and turbulent. It brings to my mind an article by that iconoclast Tai Solarin, ‘May your Road be rough.’. The road to managing the economy today in Nigeria couldn’t have been rougher indeed.
It is first in order to commend the Ministry of Finance for rapidly evolving the professional culture of having to review the Budget. It is on record if my memory serves me right that we also had a review of the budget last year except I am now not aware that action plans following this review were advertised. What gets measured gets done. Therefore, if officers who have responsibility for driving implementation are mindful of the imperatives of promised review nothing could better focus the mind for a shot at robust implementation of the Budget. One of the reasons the economy has had lackluster performance is no doubt due to lack of impressive and commensurate record of budget implementation.
Budgets have been approved late often mid-year such that capital spend which should drive growth are implemented in the breach. But for the review to be meaningful there must be corresponding quarterly targets to guide the process otherwise it becomes problematic finding a benchmark for realistic assessment. So, we anticipate a review; even more than a review probable an entirely new budget considering the turbulence in the environment. But the difficulty now is that you must literally have to reach safe harbor before you are able to take stock. It is futile even unrealistic to attempt any budget review in the present volatile and fluid circumstances.
There are two outstanding characteristic of Budget 2020 that compels review to gauge what impact if any they have had. The first is the welcome development of being the first time in probable two decades that we are able to align the commencement of the Budget year with the calendar year. The expectation is that this development should give a boost to our ability to implement particularly the capital budget. It could have been informative to see how this promise was realized even if as was recently announced, no capital releases have so far been made. The other issue is the introduction of the Finance Bill with a view to giving a boost to fiscal revenue flows to commence addressing the problem of fiscal sustainability.
With the promise that the Finance Bill would henceforth be a regular feature of Budget preparations and submissions. The Finance Bill included so many laudable initiatives such as; provision of support to Small and Medium Scale Industries, tax exemptions to companies engaged in agricultural productions by the granting of tax holidays. There was also an introduction of stamp duty charges on electronic payments for transactions in excess of N 10,000 which attracted so much criticism. The agitations that followed this charge have now quietened down even as the Central Bank disavowed its authorization of the levy. The Value Added Tax (VAT) was finally increased by 50 per cent in spite of strigent opposition. How far has the treasury been impacted in this regard? A review would most certainly shed some light on the journey so far in these respects.
The failure of OPEC + Russia and others to reach agreement during there meeting on March 5, 2020 portends frightening possibility which does not bode well for anybody. Already Saudi Arabia with its daily capacity production of 12 million barrels a day has commenced the war for market share by boosting supplies and offering price discounts.
The Russians with a daily capacity of 10.8 million barrels per day have followed suit and there is already overnight glut in the market. Both countries are better position to take cuts in price as particularly Saudi Arabia has a production cost of 5 dollars a barrel while the Russians have an equivalent cost of 15 dollars per barrel. Nigerian on the other hand has a production cost per barrel of 30 dollars and therein lies the dilemma and the competitive disadvantage.
Therefore, the cost of international benchmark crude Brent, which hovered around 52 dollars a barrel in less than five days fell to about 31 dollars making nullity of the projections in Budget 2020 based on 57 dollars per barrel. The only imponderable now is how long the brinkmanship amongst the key oil producers would last otherwise we are in for very difficult times indeed. You can only imagine the nightmare which the handlers of the economy will be living through now.
There has been this talk that the Governor of the Central Bank indicated that the Country will only consider devaluation over the twin occurrence of the Reserves falling below 40 billion dollars and oil price being as low as 30 dollars a barrel. We seem to have passed both benchmarks and therefore there is now the expectation of devaluation. But there again to what end as devaluation in our particular circumstances would only have the clear effect of the worsening of price inflation? Would the prevalent inflationary situation worsen? Inflation in Nigeria has been due to the result of excess liquidity. Well I guess under this scenario there could be flight to dollar and it might be more difficult for the Central Bank to hold the exchange rate of the Naira. Obviously under the scenario just highlighted, something must give and the economy would most certainly be the worse for it.
COVID 19 which has spread to 60 countries in the world and still counting has now also added insult to injury! The global economy has so far lost up to 50 billion dollars as at the end of February, 2020 according to estimates by the United Nations. The World Bank Group around the same time indicated that it has provided up to 12 billion dollars as immediate support for countries coping with the virus. African countries are expected to lose as much as 40 million dollars in revenue due to flight disruptions while global aviation industry is projected to lose 29 billion dollars this year.
Growth projections in Nigeria have already been scaled down by World Bank to 2 per cent even if our own National Bureau of Statistics is more upbeat by projecting 2. 55 percent. We pray that the ferocity of the violent storms now buffeting the world economy would have a short expiry date so that the world could quickly get back to the more familiar challenges of managing development and regular existential challenges. I just stumbled on prayers composed by the Catholic Bishops’ Conference of Nigeria as they are wont to do in supplication to God for His intervention. It has gotten to that stage and as a man of faith I surely believe that there is nothing prayers cannot do.