Some finance and economic experts have called on the Federal Government to explore alternative sources of non-oil revenue to reduce the impact of drop in crude oil prices. They also advocated massive spending by the government in order to get the economy back on the path of sustainable growth. The International Monetary Fund had last week projected that the Nigerian economy would shrink by 3.4 per cent this year, worse than the global average projected at three per cent.
Crude oil prices had dropped from about $46.64 per barrel in February to less than $20 per barrel. The Federal Government had in the budget proposal revised downward the revenue projection for the 2020 fiscal period by N3.3tn from the initial approved amount of N8.41tn to N5.08tn. The reduction in revenue projections was due to the negative impact of the coronavirus pandemic.
Based on the revenue parameters upon which the revised proposal was made, the Federal Government reduced downwards the oil price benchmark from $57 per barrel to $30 per barrel. Similarly, the oil production volume was cut from the initial 2.18 million barrels per day to 1.7 million barrels per day. But the experts who spoke to our correspondent in separate telephone interviews said that while the outlook remained fragile, massive spending, especially through well targeted approach, would help to reduce the negative impact of the coronavirus pandemic on the economy.
Those that spoke to our correspondent are a former Minister of Finance, Olusegun Aganga; Managing Director/Chief Executive Officer, Cowry Asset Management Ltd, Johnson Chukwu; and a professor of capital market studies, Uche Uwaleke. Aganga called on the government to reduce wastages and block all forms of revenue leakages in order to unlock the needed funding for development programmes. He said, “My first focus will be to cut and control cost in a significant way. Cut the wastages, block revenue leakages and take this unique opportunity to cut the cost of governance.
“We all know that the presidential system of governance is an expensive one and we now know we cannot afford it. Why don’t we do something about it now? “This is a unique opportunity to make certain structural changes. We should not miss the opportunity. We also need to re-prioritise spending and improve the quality of our spending.” Aganga added, “When we talk about sources of finance for the economy as opposed to the budget, there are four main sources.
“First, government sources of revenues include loans. This is limited now but if we make our case well and we are seen to have taken some tough measures already, we may be able to access some grants, soft loans. “I believe the government is already doing this. Expect revenues from taxes, Customs and Value Added Tax to fall. Some may have a dramatic fall. “Second, diaspora remittances; this is also affected because COVID-19 is global and has had impact on jobs globally.
“Third, international investors and local investors: I am not talking about hot money here. We should focus more and incentivise local investors. “Our debt servicing cost is a relatively high percentage of our annual revenue. We should be engaging our lenders now to suspend all payments of financing cost and work towards renegotiating some of the loans and where possible seek debt forgiveness.” Uwaleke said the lockdown imposed by government had taken a great toll on economic activities, disrupted supply chains and by extension productive activities with the downside risk of rising unemployment.
He said, “Massive loss of jobs can only mean weak aggregate demand. So, the point about increased targeted spending to stimulate the economy stands to reason and this can only be facilitated if the deficit cap of three per cent of Gross Domestic Product provided in the 2007 Fiscal Responsibility Act is lifted, at least for now. “The major challenge now is the effective implementation of these measures to ensure that the funds are well utilised to oil the wheels of the economy.”
Chukwu said many countries had spent in key areas to stimulate their economies out of recession. He, however, said the Federal Government’s current fiscal position constraints it from embarking on such huge expenditure as a result of accumulated large deficits over the past few years. This, he said, would make it impossible to borrow large amounts of money from the Central Bank by ways and means, without stoking inflation.