There are growing indices confirming that the Nigerian economy’s fiscal outlook is becoming dismal and may be the worst ever recorded since 2005. Earlier in the year, the Federal Government had planned the largest fiscal deficit in the history of the country following the projections on low revenue from oil sales as oil prices had started plummeting since the last quarter of 2008.
Though, the government had originally planned to finance part of the 2009 budget through domestic debt of N524 billion, signature bonus of N125 billion, privatization proceeds of N100 billion and an international bond of N62 billion, the revenue situation five months into the year and other economic realities have compelled the Presidency to consider a review of the budget, and seek for other financing options. This review is indeed necessary in the present environment.
This fall in revenue which the President confirms is 30% lower than the projected figure for the first quarter of 2009, is essentially as a result of the inability of government to meet up the projected crude oil production of 2.2million barrels per day, due to the problem in the Niger Delta and OPEC‘s output regulations. Current crude oil production figure hovers around 1.6 million barrels per day.
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The incidence of low production of crude oil has been further complicated by the shortfall in tax revenue. The Federal Inland Revenue Service has confirmed that the tax revenue of the Federal Government in the first quarter of the year plummeted from a projected N477 billion to N353 billion. In a related development, the International Monetary Fund has projected that Nigeria’s budget deficit is likely to widen to around 8.5 % of GDP, following the decline in oil and gas revenues. Following from these declining revenues, the IMF projects a situation whereby the country’s foreign reserves may fall below $40 billion, and a deficit of 8.5% of Gross Domestic Product (GDP).
As the Federal Government explores the opportunities of securing a $500 million loan from the World Bank as well as an additional loan of $ 150 million from the African Development Bank, it is thus imperative that the current budget be reviewed, aligning the revenue projections to the current realities and consequently readjust the expenditures to fit the current revenue capacity of the Federal Government.
Beyond reviewing the current budget, concerted efforts towards boosting non-oil revenues through taxes and tariffs should be made. A steady shift from dependence on oil revenues to a diversification of revenue base is a measure that will provide lasting succour for the Nigerian economy. The Federal Government and other arms of government especially the legislative arm should adjust their expenditure, particularly that bordering on recurrent costs in order to reflect the deteriorating situation of government finances. It should not be business as usual, as the country may be heading for a debilitating fiscal crisis if utmost care is not taken.
