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FG’s Non-oil Revenue Projection Unrealistic

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budget
  • FG’s Non-oil Revenue Projection Unrealistic

The federal government’s non-oil revenue projections in the 2017 budget are unrealistic, when viewed in the context of past budgets, a report by the Time Economics, a research-focused firm has stated.

The Time Economics stated this in its Mid-Year Report obtained on Monday.

It pointed out that the bulk of non-oil revenue in this year’s budget was expected to come from Value Added Tax (VAT), Companies Income Tax (CIT) and Customs and Excise Duties, revenue sources which underperformed by an average of 26 per cent between 2011 and 2015.

The 2017 Appropriation Bill was signed into law on June 12th, 2017 a month after it was passed by the National Assembly, and over six months after the budget was presented to lawmakers by the President Muhammadu Buhari. The budgeted expenditure in the final version of the bill differed from that in the proposed budget by N143 billion, an increased from N7.298 trillion to N7.441 trillion.

The budget was based on a benchmark crude oil price of $44.5 per barrel, oil production of 2.2 mbpd and an average exchange rate of N305/USD. Revenue is expected to be N5.08 trillion of which N1.999 trillion will come from oil, N1.373 trillion from CIT, VAT, Customs and Excise Duties and Federation Account Levies, N807.57 billion from Independent Revenues, N565.1 billion from Recoveries and N210.9 billion from other revenue sources such as mining.

But the report stressed that in the past, the government’s revenue projections had been quite optimistic; actual federal government revenues were an average of 17 per cent below projected revenue between 2011 and 2015.

“In 2016, total half year revenues from these sources were 54 per cent below projections. Although the government reduced its expected revenue from these sources from N1.392 trillion to N1.373 trillion, its projection is still quite unrealistic.

“These revenue sources are dependent on the performance of the economy, which is projected to grow by only one per cent from its 2016 level.

Therefore, it is extremely unlikely that any increase in the actual revenues realised in 2017 – even after accounting for the growth in the economy and a higher level of tax compliance – will be enough to prevent substantial underperformance in non-oil revenue.”

At the end of 2015, GDP per capita was approximately $1900, using an exchange rate of N197/USD and a population of 182.2 million (World Bank). Full year GDP growth for 2016 was -1.58 per cent, and if assumed that Nigeria’s population grew by 2.5 per cent, and an exchange rate of N305/USD, GDP per capita fell to $1177. This decline in income over a single year was quite substantial but it was even worse when compared to GDP per capita in 2014 which was approximately $2200, a 47 per cent decline in just two years, the report added.

“If the economy grows by one per cent in 2017, and the exchange rate is unchanged at N305/USD, GDP per capita falls further to $1160, again assuming 2.5 per cent population growth. Given the significant reduction in income for the average Nigerian since 2014, and the high rate of population growth, GDP growth will have to be above 5% for a long time for Nigerians to have any chance of regaining their lost income,” it stated.

Most analysts and observers expect growth in the Nigerian economy to be about one per cent in 2017 based on expectations of higher oil prices and production. The major reasons for the recession in 2016 were lower oil production due to an insurgency in the Niger Delta region, the fall in global oil prices, and a low level of budget implementation by the government. Higher oil prices in 2017 on the back of an OPEC oil output cut agreement and higher oil production as the government begins to find a solution to the insurgency problem should be enough to see the economy return to growth in 2017.

However, the contraction of the economy in 2016 combined with population growth and the depreciation of the Naira means that the average Nigerian’s 2017 income in Dollar terms will not return to the level of 2014 /15 any time soon, even with the anticipated one per cent growth, the report argued.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

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Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

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Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

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Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

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Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

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Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

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