What we are doing to revive the Nigerian economy- Finance Minister PT 2
It is now official, the Nigerian economy, which overtook South Africa to emerge as the largest in Africa in 2014, is now in recession, the federal government finally declared yesterday.
The Minister of Finance, Mrs. Kemi Adeosun, who made this disclosure while briefing the Senate yesterday on the state of the nation’s economy, was however emphatic that the recession was technical and would be short-lived.
The recession, notwithstanding, Adeosun was confident that Nigeria would come out stronger in view of the policies and programmes that the government had put in place to address the downturn.Buttressing the point, her counterpart in the Ministry of Budget and National Planning, Senator Udoma Udo Udoma, who briefed State House correspondents after the 69th meeting of the National Economic Council (NEC), said the economy was “technically in recession”, adding however that it would start to grow by the end of the third quarter of 2016.
She also confirmed that fuel subsidies had been totally eliminated, adding that the petroleum products in the country were now market-driven, as the subsidy removal by the government had paved the way for healthy competition among oil marketers.
“Is Nigeria in recession? Technically, if you go into two quarters of negative growth. Technically, we are in recession but I don’t think we should dwell on definitions. I think we should really dwell on where we are going.
“I think if we are in a recession, what I will like to say is we are going to come out of it and it will be a very short one because the policies that we have will ensure that we don’t go below where we need to go and I think with what we are doing, we will begin to turn the corner by the third quarter.
“I can confirm there is no more subsidy. It is a market-driven price and indeed, one of the good things that we are now seeing is that prices have actually been coming down.
“There is now competition between filling stations for market share which is a good thing, which means overtime, the market will continue to correct itself,” she said.
Adeosun also disclosed that Nigerians, before the removal of the subsidy, consumed 45 million litres of petrol a day, but consumption has now dropped to 26 million litres a day, a situation she said had provided the platform for the government to make reasonable savings.
“If you look at what is happening in the petroleum sector before the subsidy removal, we were subsidising around 45 million litres of fuel a day.
“Now, without subsidy, usage has dropped to 26 million litres. So what does that tell you? All the smuggling that was going out of the country based on the subsidy that we were providing has stopped. Those are real savings to the economy which we are now redirecting into essential infrastructure that will get this economy going,” she explained.
The minister also told the senators to ignore the recent projections from the International Monetary Fund (IMF) that the Nigerian economy would be vulnerable to global shocks.
According to her, IMF projections were not necessarily in tandem with reality, insisting that she remained confident in the potential of the Nigerian economy to weather the current economic crisis.
“I am not too worried about IMF projections. I will tell you why: The IMF, one of its functions is global economic surveillance. They equally issued a negative report on Britain as a result of Brexit.
“But I don’t think we should panic every time IMF speaks. I think we need to be confident about what we are doing and where we are going. I remain extremely confident as I said.
“IMF has given its projections which is that we may continue to go into negative territory and I am not sure what we have seen suggests that.
“Agricultural output seems to be going up… That tells you that things are moving in the right direction,” she said.
Adeosun, however, evaded questions on the amount left as reserves by the administration of former President Goodluck Jonathan. Instead, she said as the Minister of Finance, she inherited negative reserves.
Submitting that there was a joint venture cash call debt of $5 billion that are outstanding to international oil companies, Adeosun, however, said the federal government had released N248 billion for capital projects provided in the 2016 budget as part of efforts to get the economy going.
She added that contractors being owed by the government had been paid N107 billion out of the outstanding N390 billion they were owed since 2012.
She also disclosed that N74 billion had so far been released for road construction to the Power, Works and Housing Ministry from the 2016 budget compared to the N19 billion released for the purpose last year.
She also said N21.6 billion had been released to the Ministry of Agriculture as against the N4.2 billion the ministry got in 2015, adding that another N22 billion had been released to the Ministry of Transport.
She also said the figure for salary payments had been reduced from N165 billion to N159 billion owing to the effort of the government to reduce recurrent expenditure.
She said: “I think at a time like this, blaming who was responsible doesn’t actually take us anywhere, but I will tell you what I inherited. I inherited very little by way of reserves.
“I inherited significant debts, contractor debts, cash calls of $5 billion outstanding to oil companies. I mentioned the cash calls of $5 billion outstanding to the oil companies. I equally mentioned the fact that many of the contractors, even though we have paid them N107 billion, find it very difficult to work because they are owed and some of them have not been paid since 2012.
“Their claims were over N390 billion. So I didn’t inherit reserves that were positive. I inherited reserves that tend to be more negative than positive, but the economy is actually now in very good hands and we are doing absolutely our best to get through this difficult period and I explained how we are doing that.
“We have been extremely disciplined around our spending. We are investing in essential infrastructure. I gave the matrix we have released: N74 billion to works in two months, compared to N19 billion for the whole of last year.
“We are doing everything possible to avert and to manage the situation which we didn’t create unfortunately, but which we inherited and we as a nation, we must all get out of.”
On borrowings, she said the government had been borrowing to finance the 2016 budget deficit largely from the domestic market because it needs to resolve the exchange rate problem first before it could proceed to borrow from the international market.
According to her, the government would begin to engage in international borrowings in the third quarter, saying she was confident that the economy would record at least 60 per cent performance based on projections, adding: “I think that our revenues will be better if the economy sustains its trajectory.”
On the exchange rate, Adeosun said whereas the exchange rate was predicated on N197 to $1 in the 2016 budget, the current official rate was now N280 to $1, explaining that the impact of the difference would only reflect on revenues.
“What will simply happen is that the revenues in nominal terms will increase and that will flow through into the revenue performance. What will happen is that the amount of the deficit will go down because the government will convert dollars to naira and will get more naira in nominal terms,” she explained.
She also disclosed that N15 billion of the budget for social interventions had been released for capital expenditure “and we put in N5 billion this month for recurrent and so that will continue to increase as they roll out the implementation of things like the agriculture extension workers’ scheme, and the other job creation initiatives”.
Adeosun also told the senators that it was untrue that the federal government would not implement the N60 billion constituency projects in 2016 budget. She said everything in the Appropriation Act was meant for implementation.
The Senate had summoned the Secretary to the Government of the Federation (SGF), Babachir David Lawal, last week over his comment that constituency projects in the budget would not be implemented owing to the drop in oil earning arising from militancy in the Niger Delta.
Lawal restated the claim when he appeared before the Joint Senate Committee on Ethics, Finance and Appropriation, saying the federal government lacked the resources to implement the projects.
Continuing, Adeosun assured her audience that all of the government’s plans to reposition the economy, in spite of the drop in oil prices and other challenges, were consistent with the promises made at the inception of the administration.
While admitting that Nigerians were going through a painful adjustment, she reassured the public that the federal government was on the right track and no money was being wasted.
“Much of our revenue will come in quarter three of the year. For example, most companies’ end their year in December. So it is from September they will begin to pay their taxes.
“I am very confident that we will do very well, at least we will do over 60 per cent based on our projections, but I think our revenue will be better if the economy sustains its trajectory.
“In our releases, we have tried to prioritise capital projects. For instance, the works ministry needs to have its money during the dry season because during the rainy season work stops.
“In terms of agriculture, we are focused on providing low-cost farms to support agriculture. There is zero per cent duty on importation of mechanised farm equipment.
“For infrastructure, we are revisiting the public-private partnership (PPP) project arrangements that have failed and trying to see where we can resolve them.
“This is important because no matter how much government spends, it is not enough to bridge the infrastructure gap, therefore we need private money.
“One of the reasons why the impact has been fairly limited is the issue of arrears. We inherited significant contractual arrears. Though we have paid contractors, they are finding it very difficult to return to sites, but we are addressing those through the Debt Management Office,” she said.
On social intervention projects, the minister said that N14 billion had been released for the recruitment of teachers and the school feeding programme, among others.
Adeosun, who stressed that Nigeria remained the largest economy in Africa, expressed optimism that the economy would make significant improvement.