The Federal Government said on Thursday that it was conscious and strategic never to base the foreign exchange benchmark in the 2024 budget on a spot rate, to avoid eventualities and uncertainties.
Atiku Bagudu, Minister of Budget and National Planning, disclosed this while fielding questions from State House journalists after meeting with President Bola Tinubu.
Bagidu explained that before arriving at the projected exchange rate of N750 to the dollar in the 2024 budget, which the National Assembly raised to N800 to the dollar, the government considered and viewed critically, the average performance of the naira.
“For budgeting purposes. You don’t use the spot rate of anything. Oil prices can go to 120 today; maybe there is a shortage; maybe there is a collision between two ships that will block a channel. It would be foolish to use that as a reference price. I should take a period of maybe six months to one year and say, Let me observe this average behaviour, so you don’t use spot prices. So even with an exchange rate like that,” the minister noted.
He explained that “much as we are hoping that it will soon come below, but at the time you are doing the budget, you will take a view on average performance. And that’s what we took.”
“In fact we took an average performance of 750 on the executive side and we proposed it to the National Assembly and the National Assembly in its wisdom, and mind you this is democracy, and President Tinubu is one who is a lifelong advocate of institutional separation of power.,” Bagudu added.
The minister also disclosed that President Tinubu respected the National Assembly in allowing it raise further the exchange rate considering his high respect for institutions and democracy.
“So, he respected democracy that even though it was higher than what he submitted, but the institution that says so, has the authority to say so and even at the time they say 100, because it’s not an official rate it’s tidal, because with the deregulated market, you no longer have an official rate, it is much lower than even the way the markets are bidding.,” the minister said.
The Minister noted that the Federal Government was sure that with the measures it is currently taking, there will soon be significant increase the supply of foreign exchange into the economy.
The Budget minister who also spoke on the level of borrowing to fund the deficit in the 2024 budget, said that difference between this years borrowing amount compared to 2023 remained significant.
“In 2023, the budget anticipated a borrowing of close to N14 trillion. This year’s budget is N9.1trillion. So we think that is significant. Because it’s 2023 took us to about 6.11 percent of our GDP as borrowing. This one is 3.8 percent. So the quantum had decreased,” Bagudu added.
The Budget Minister explained that the Federal Government within the 2024 fiscal year intends to operate strictly within the dictates of fiscal responsibility law, which provides for the Central Bank of Nigeria (CBN) to lend to the government through its Ways and Means window, only 5 percent of the total budget.
“We will not go outside the law and borrow from ways and means, what is outside the law. So the fiscal responsibility law says, in every one year, the central bank can lend the government up to 5 percent of its budget for the year.
“So if you go out of that, you’re going outside the lawful limit, and that’s what the minister of Finance and Coordinating Minister of the Economy was very clear we are not going to do. We are not going to resort to borrowing outside the law.
“And secondly, as much as possible, we will even borrow away from the central bank because sometimes it’s even cheaper to borrow. So, those are the two elements. So the quantum has decreased, then we will go by the book.
“The President, in his steadfastness has brought a central bank governor who will not even allow and we also determined coordinating minister and I so that’s combination of two.
“And then three, our revenue projections are designed to ensure that everyone earns his job. This is a country that had onces produce more than 2 million barrels a day. So why are we behaving as if we can’t achieve that again?
“So the first thing is to ask people and ensure that people begin to run around to earn their job the President said as much. So that’s the basis of confidence and optimism, that combination of those measures on the borrowing and then the emphasis that we must collect.
“We have seen the reforms so far have been the more revenue but we are not stopping there. We believe that our objective to achieve at least 1.8 million production per day is something that has been done before. And with security gains that are increasing with mobilizing of all stakeholders.
“For example, just yesterday, maybe you will have seen even the governors have re-energize the National Economic Council Committee on crude oil theft and prevention. So that governors will say to the extent that is happening in their state, they will take personal responsibility and lead.
“So if all governors can control their states, we assure that things can be done. So because of that we are confident that the revenue projections are achievable and with budget efficiency and discipline we are putting we believe that we won’t recourse to additional borrowing than maybe we will even borrow less,” Bagudu noted.