Nigeria’s economic managers could receive an estimated N1.2 trillion in additional gross oil revenues, if dollar assumptions in the 2015 budget reflect the Central Bank of Nigeria’s (CBN’s) implied naira devaluation on Wednesday February 18.
BusinessDay estimates that adjusting the budget exchange rate assumption to the interbank foreign exchange rate, currently at N199, could raise government’s gross oil revenues by about 21 percent or N1.2 trillion, before production costs and other statutory deductions are made.
Analysts at Financial Derivatives Company (FDC), explain that a wider impact of the currency adjustment is “higher revenue for states and FGN”, besides stemming round tripping and moving to a more efficient exchange rate model.
Yvonne Mhango, economist at Renaissance Capital, also agrees “a weaker naira … means the Federal Government will get more naira to finance the FY15 budget.”
Africa’s largest oil producer has sent a N4.5 trillion spending plan for 2015 to the National Assembly, with revenue estimates that rely on dollar oil earnings to provide over 63 percent of the distributions to federal, state and local governments.
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Nigeria’s budget office website shows the baseline assumptions of the 2015 budget as $65 benchmark oil price, 2.3 million barrels of oil production per day, and N165 average exchange rate.
The naira devaluation would come as respite to the government, as BusinessDay reported yesterday that Minister of Finance, Ngozi Okonjo-Iweala will consider further cuts to the 2015 budget in an article by syndicate partner, Financial Times of London.
Biodun Adedipe, economist and chief consultant at BAA Consult, believes the advantage of the naira devaluation can only be harnessed through a “real commitment (by government) to deal with leakages in fiscal operations.
It is time for the government to get serious with blocking the leakages and the structural defects underlying the excessive foreign exchange demand.” Adedipe concluded emphatically in a phone interview with BusinessDay.
Ayo Teriba, economist and CEO of Economic Associates, also believes the government’s silver lining is in “higher revenue from increased fiscal transparency and higher non-oil taxes.”
Nigeria runs the risk of losing a BB- sovereign rating from Standard and Poor’s, ahead of the March elections and the risk of being cut off the JPMorgan emerging markets government bond index, over the next three to five months.
The CBN’s devaluation and the potential government revenue upside may be connected to keeping a healthy international investor status, among other reasons.
Akin-Olusoji Akinyele
