Nigeria’s economy is in bad shape with its current performance indices and outlook in the foreseeable future negative.
Abuja may downsize workforce to cope with dwindling finances.
Crude oil, the major foreign exchange (forex) earner, has maintained a prolonged lower price that led the government controlled by the Peoples Democratic Party (PDP) to borrow to fund the budget.
The surge in United States Shale Oil production has created a supply glut in the international market which crashed crude prices by over 50 per cent, from its June 2014 peak of $117 per barrel (pb) to $66.60 by Thursday, May 21, 2015.
There is sufficient reason to believe that crude oil price will decline further, despite a slight appreciation in recent weeks. This is because a final nuclear accord between the U.S. and Iran expected to be signed next month will enable Iran to triple oil supply.
International impact
Sanctions imposed by the U.S. and European Union (EU) have choked off nearly 1.5 million barrels per day (bpd) of Iranian exports since early 2012, reducing its oil exports by 60 per cent to around one million bpd.
The tentative accord was a step towards a settlement that would allay Western fears that Iran could build an atomic bomb, with economic sanctions on Tehran being lifted in return.
Iran has the capacity to produce three million bpd. If it does, that would worsen the glut in the international market with the result that crude oil prices may crash below $50 pb, $15 below Nigeria’s 2015 budget price benchmark of $65 pb.
The decision by the Organisation of Petroleum Exporting Countries (OPEC) to defend market share rather than reduce production will continue to accelerate the decline in crude oil price; implying that Nigeria will contend with lower revenue and huge budget deficit.
This may lead to the rationalisation of public sector workforce. Removal of fuel import subsidy may be a virtue of necessity, with a spill over effect of inflation triggered by hikes in the cost of transportation.
Again, a huge debt of about N12 trillion, and foreign reserves declining to almost $28.9 billion (from about $49 billion where President Goodluck Jonathan met it in 2012), will exert more pressure on fiscal planning and exchange rate.
Osinbajo screams
Vice President-elect Yemi Osinbajo, screamed last week that the incoming government of Muhammadu Buhari will inherit the worst economy ever in the history of the nation.
He disclosed that local and international debt stood at $60 billion with a 2015 debt-serving bill of N953.6 billion, representing 21 per cent of this year’s budget.
In other words, 21 per cent of the current budget will be spent on debt servicing alone.
This leaves the government with hard choices of borrowing to fund recurrent expenditure or slashing the bloated salaries and allowances of political office holders.
Dwindling oil revenue has made it difficult for 24 of the 36 states to pay salaries.
Under Jonathan’s administration, the country’s debt has risen from about N5 trillion to N7.55 trillion in December 31, 2012; N10.04 trillion by December 31, 2013, and N12 trillion by May 2015.
Finding solution to fuel scarcity
Buhari will inherit one of the worst fuel crises in the past five years.
Nigerians find it difficult to make sense of the current scarcity, a result of the ding dong between Abuja and oil marketers over fuel subsidy payment.
The crisis has lingered for more than two weeks, and it gets worse by the day.
Marketers refuse to raise a finger in resolving the problem unless the debt owed them by the government is fully paid.
Major Oil Marketers Association of Nigeria (MOMAN) Executive Secretary, Obafemi Olawore, said they are owed N200 billion, and that banks have stopped giving them loans for oil import because of their huge indebtedness.
Finance Minister and Economy Co-ordinating Minister, Ngozi Okonjo-Iweala, disputed the debt figure, saying marketers are owed about N131 billion. Even at that, Abuja does not have the money to pay.
“We wonder why the marketers suddenly became desperate to collect the money owed them to the extent that they have stopped fuel importation.
“[They] are aware of the challenges confronting the government; we expect them to be considerate and go about making their demands with a human face,” she said.
To resolve the crisis, experts insisted that Buhari must first clean up the oil sector, especially the subsidy claims and the alleged $20 billion missing from the coffers of the Nigerian National Petroleum Corporation (NNPC).
Former British Prime Minister, Tony Blair, told Buhari to take the opportunity of the change momentum and eliminate fuel subsidy, the cause of major fraud in the oil sector.
“You will have more goodwill to do the difficult things at the beginning of your tenure than at the end”, Blair said.
He cited the example of Indonesia, where fuel subsidy was scrapped and the economy took off with a bang, “which made the international community and the people know that the government was dead serious.”