Some members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) have expressed concerns over the fiscal challenges facing the Federal Government as it struggles to ramp up revenue mobilisation.
The MPC last met on July 18 to 19, 2022, confronted with heightened macroeconomic uncertainties, broad-based inflation across countries, and weakening global recovery associated with the ongoing Russian-Ukraine war, as well as backlash from a wide range of sanctions imposed on Russia.
Several members, in their personal statements obtained from the CBN, highlighted the need for the government to take measures to address its rising fiscal deficit.
“The fiscal sector is seriously challenged,” Adeola Adenikinju, a member of the committee, said, adding that Federal Government revenue underperformed relative to the budget in the first quarter of the year.
In July, the Federal Government revealed that its revenue exceeded debt service costs in the first four months of this year. Its retained revenue was N1.63 trillion, less than half of the N3.32 trillion budgeted for the period, but it spent N1.94 trillion on servicing debts.
“On the fiscal challenges confronting the country, there is an urgent need to jettison the current fuel subsidy policy. While in an election year, the government may be very reluctant to embark on this policy, it is not impossible for the government to force the NNPC Ltd to be more efficient and transparent,” he noted.
Another member, Robert Asogwa, said CBN staff report showed that fiscal deficit as at March 2022 was 70 percent above the deficit recorded in first quarter of 2021.
He said: “The government revenues are yet to increase significantly despite the high oil prices which have hovered at over $100 per barrel, way above the 2022 budget benchmark of $62 per barrel, mainly because of the recent surge in oil theft across the country.
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“With debt service obligations now threatening to catch up with revenue receipts, it is critical to commence a process of fiscal consolidation which will help to ensure that debt sustainability is guaranteed even with the high government financing needs.”
Kingsley Obiora, deputy governor in charge of economic policy at the CBN, said the nation’s economy remained fragile “partly because the domestic crude oil production continued to trend below the OPEC quota of 1.74 mbpd and the budget benchmark of 1.88 mbpd”.
“The continuous shortfall was attributed to the renewed cases of oil theft and pipeline vandalism, leading to increased fiscal deficit and debt concerns,” he said.
He said high unemployment, lingering insecurity, and widening infrastructural deficits continued to weigh on the growth recovery.
“The fiscal space is characterised by a significant shortfall in revenue, even as the need for increased expenditure stares us in the face. This has resulted in rising deficits, huge debt stock and overwhelming debt service obligations leaving little or no resources for other government obligations,” another member, Folahodun Shonubi, said.
Shonubi added that in the external sector, low inflow from crude oil sales due to declining production investment and oil theft had caused significant decline in accretion to the external reserves and foreign exchange supply, leading to exchange rate pressure from pent-up demand.
“In the case of energy prices, in the past, higher oil prices had improved Nigeria’s fiscal and external positions, boosting exports and government spending. It also had spillover effects on the non-oil economy, particularly services, and manufacturing sectors,” he said.
Mohammed Salisu said the higher crude oil price translated into higher cost of imported petrol, leading to higher subsidy on the product.
“So long as fuel subsidy is in place, it will continue to erode the revenue gains associated with higher oil price,” he added.
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