FG Will Use Oil Savings to Protect Economy…… Okonjo-Iweala
WASHINGTON: The federal government on Thursday allayed fears that the economy is in danger in view of falling revenue, Nigeria’s major source of foreign exchange earnings, caused by drop in production.
Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, said at a press briefing in Washington, the United States, on the sideline of the ongoing 2013 Spring Meeting of the World Bank Group/International Monetary Fund, that the government would resort to withdrawals from the Excess Crude Account (ECA) as an interim measure to ward off any threat to the economy. Nigeria has a balance of $7 billion in ECA.
Giving an insight into the state of the nation’s economy, she explained that Nigeria is losing a total of about 300,000 barrels per day arising from recent shut-in of Shell Nembe operations, shut-in owing to force majeure declared at Qua Iboe Terminal, which has led to a loss of 65,000 pbd and other losses , including those by Agip, and at Okono, Brass and Amenam Terminals due to repair work on equipment.
In addition, the economy has suffered great loss due to the activities of oil thieves and pipeline vandals, all which has led oil production to fall to between 2.1 and 2.2 mbpd as against the 2013 budget projection of 2.528mbpd.
The loss, she added, translated to a drop of $1 billion in revenue per month.
“In dealing with the impact of this on revenue, the government has had to draw on the Excess Crude Account (ECA), which was set up precisely for this purpose; that is to deal with unanticipated losses due to output and price variation.
“The president has been briefed on these developments and action is presently being taken on different fronts. He (president) has ordered the navy to increase its patrols around the hotspots for oil theft and illegal bunkering,” she said.
She said government has been aware of the ominous threat to the budget and that was why it has taken proactive steps to stem the losses.
According to her, the Minister of State for Finance, Dr. Yerima Ngama, had at the last session of the Federation Account Allocation Committee (FAAC) meeting alerted the nation to the fact that government was feeling some pressure on its finance arising from the volatility in the oil sector.
Asked the fate of the 2013 budget in view of threats to its fundamentals, Okonjo-Iweala said the savings in ECA were enough to stabilise the economy for now pending when the results of steps the government has been taking to redress the situation would start bearing fruits.
She explained that although there has been a general drop on collectible revenues from all fronts, she was not worried because Nigeria has saved for the rainy days, adding that that was why she has not bothered to approach any multilateral institution for help on the Nigerian economy.
Reminded that the withdrawals from ECA could only be a short-term measure in tackling an impending budget crisis in view of the threats to the fundamentals of the 2013 Appropriation Act, she added that government was taking other long-term steps to diversify the economy and to close the fiscal gap.
She said: “Customs revenue for the month of April sharing is also down because import of rice is substantially down since we moved for self-sufficiency in rice, tariffs went up in January. We think that people probably imported a great deal last year and stored them and the import is what is being drawn on and our production is going up. It is our own policy but we have to recognise that some of our policy measures would lead to reduction in revenue in this sector.
“By far the largest impact that as you know is on the oil sector. However, the ECA is not meant to be a permanent feature; it is something that is both an instrument of fiscal policy in a country, not just Nigeria, that has a natural resource base that experiences a lot of volatility. It is very useful in cushioning the impact. But in the longer time, Nigeria simply has to diversify its revenue base. This administration has been very crystal clear and that is why the president focuses so much on agriculture and why we are supporting reforms that are being carried out in the agriculture sector not only to create jobs, but also to diversify revenue base.
“We are going into a drive to increase our overall collection of taxes. We have large gaps also in our tax collection, especially from the corporate sector. We have been working closely with FIRS and some consulting companies to look out at the gaps. FIRS has improved over time and it can improve better. So we set ourselves targets to increase our revenue, especially from the non-oil sector. Within the next 12 months, we are going on a drive. Both the diversification of the economy and efforts to improve tax collection and administration are on stream for the longer time.