Following increased pressure on revenue and the expenditure profile, the Federal Government has finally yielded to domestic and international pressures to remove fuel subsidy.
This is coming as crude oil prices hit a seven-year low with global prices of crude at $36.7 per barrel effectively disrupting Nigeria’s $38 per barrel benchmark for 2016 budget.
The crash has resulted into about N1.45 trillion shortfall in the value of the projected oil output in the international market based on production target increased in the 2016 plan to 2.2 million barrel per day (mbpd), up from actual 1.9 mbpd in 2015.
Speaking at an interactive session with the Senate Committee on Finance and Appropriation were the President’s economic team…Ministers for Budget and National Planning, Udoma Udo Udoma; Finance, Mrs Kemi Adeosun and State for Petroleum Resources ,Ibe Kachikwu; Governor, Central Bank of Nigeria, Godwin Emefiele and Executive Chairman, Federal Inland Revenue Service, FIRS, Babatunde Fowler.
The Minister of Budget and National Planning has urged Nigerians to brace up for tough times ahead because of the negative economic and social issues happening across the globe.
Senator Udoma said that the federal government would cut all frivolous expenditure in the 2016 budget and overheads will be reduced by 7%.
The Central Bank Governor, the Group Managing Director at the Nigeria National Petroleum Commission (NNPC) as well as the Ministers of Finance, were also at the forum to discuss the 2016 Medium Term Expenditure Framework (MTEF) with members of the senate committee.
The Minister of National Planning explained how the federal government arrived at the indices in the MTEF while the NNPC boss, who is also Minister of State for Petroleum, Dr. Ibe Kachikwu, gave a breakdown of the oil and gas sector, including how much has been spent on petroleum subsidy in 2015.
In the Medium Term Expenditure Framework, the 6.077 trillion naira budget with a revenue target of 3.82 trillion naira, projects a deficit of 2.22 trillion naira and projects that recurrent expenditure would drop from 84% in the 2015 budget to 70% in 2016.
The Minister of Finance, Kemi Adeosun, explained how the federal government plans to cut recurrent expenditure.
She told the joint committee of the National Assembly that expenditure of all MDAs would be strictly monitored to avoid wastes, said government would take steps to ensure that whatever money was being taken from the account of any MDA was done electronically.
The Finance minister, who noted that measures had been put in place to compel revenue generating MDAs to remit all funds they generated to the treasury, said: “The era when an agency generates money and spends 99 per cent of it is over.”
In the proposed framework, capital expenditure of 16% in the 2015 budget was raised to 30% in 2016 but with dwindling oil prices, economic analysts have expressed concern about how government intends to fund the 2016 budget.
The Chairman of the Federal Inland Revenue, Mr Babatunde Fowler, said that one of the strategies which the federal government intends to use is by blocking loopholes and opening up the tax base.
To make the warning real, they disclosed that Federal Government would move fuel price from N87 to N97 per litre in 2016 while removing fuel subsidy, lamenting that excess of N1 trillion has been paid for fuel subsidy in 2015 alone.
2016 budget deficit to increase
With the latest crude oil price development, 2016 budget deficit would increase to about N2.7 trillion from N2.22 trillion, assuming government is able to meet its target of 2.2 mbpd, otherwise the deficit would be much higher.