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Budget gap may widen as imports slump


Nigeria’s budget deficit for 2016 which is projected at 3 percent of GDP or N3 trillion may widen further as a slump in imports due to collapsing oil prices and a slowing economy hits customs duties and taxes.

Even though oil share of Nigeria’s economy is small, at about 10 percent, the commodity still has an outsized impact on economic activity from its ability to slow down other sectors such as trade and imports.

Kayode Farinto, national publicity secretary of the Association of Nigeria Licensed Customs Agents (ANLCA), states that the N1 trillion 2016 revenue target set by the Hameed Ali-led administration cannot be achieved in the face of the falling naira, scarcity of foreign currency and restriction of access to foreign exchange on imports by the Central Bank of Nigeria (CBN).

“Many importers are currently finding it difficult to open form ‘M’ in commercial banks due to CBN restrictions. If an importer goes to the bank to source for foreign exchange, the tendency is that the person may not be able to get it, or there would be a limit to the amount an importer can get at a particular point in time, and all these policies are counterproductive,” Farinto explained.

The Federal Government has projected non oil revenues of N1.45 trillion for 2016 which is to come mainly from company income tax, VAT, customs and excise duties.

This may be overly optimistic in an economy growing way below potential, as can be seen from the lower year on year profits of most listed firms and much lower import and export volumes.

“It is clear that better compliance will play some role in helping to improve the amount of non-oil revenue that is collected. All the same, a second consecutive year of weak economic growth may pose some risk to the non-oil revenue assumption,” Razia Khan, chief economist for Africa, at Standard Chartered Bank, London, said in response to questions.

“Should Nigerian growth disappoint official expectations, the amount of non-oil revenue collected may still disappoint, relative to budget assumptions.

BusinessDay research shows that an average of 100 ships used to berth with different cargo at Lagos ports monthly, but this number has dropped to an average of 35 to 40 vessels per month since the second half of 2015.

Sources say terminals that have the capacity to handle three to four vessels simultaneously, now handle one or two vessels in one week.

“Owing to the current slowdown in the nation’s business environment, which resulted in a sharp drop in the volume of cargo imported through the seaports and the border stations, it will be difficult for the Federal Government, through the Nigeria Customs Service (NCS) to achieve its intended revenue projection through import duties,” said Tony Anakebe, a maritime analyst, in an interview with BusinessDay.

According to Anakebe, since the international price of crude oil dropped and the scarcity of foreign currency started in 2015, import volumes have dropped to multi year lows.

“Customs only collects duty on goods imported but when there are no imports, revenue collection becomes static.”

Painting a gloomy business outlook, Anakebe said that container terminals are currently cutting down their staff strength, while some are finding it difficult to stay in business.

Nigeria’s merchandise trade at the end of the third quarter of 2015 was N4,021.4 billion, 38.3 percent less than the corresponding quarter of 2014, as a result of a N132.4 billion or 7.3 percent and N2, 364.6 billion or 50.3 percent decline in imports and exports respectively, the Bureau of Statistics reported in its most recent data.

Brent crude for February settlement traded at $37.77 a barrel on the London-based ICE Futures Europe exchange yesterday.

WTI for March delivery ended the session at $29.88 a barrel on Tuesday. Nigeria’s 2016 budget is benchmarked against oil prices at $38 per barrel.

The International Monetary Fund (IMF) projects Nigerian growth at 4.3 percent this year, 250 basis points below a ten year average of about 6.8 percent per annum.

Nigeria’s 2016 budget proposes to spend N6.07 trillion in total with N2.64 trillion allocated for recurrent non-debt expenditure, N1.84 trillion for capital expenditure, and N1.47 trillion on debt service.

The budget has an embedded deficit of N2.2 trillion to be funded mainly from domestic and external borrowings.