Okonjo-Iweala predicts $12bn revenue shortfall

 

Coordinating Minister for the economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala

Revenue earned by the country this year may be as much as $12bn short of budget estimates as theft of crude and output disruptions persist in the oil-rich Niger River Delta, the Minister of Finance, Dr. Ngozi Okonjo-Iweala, has said.

The minister said the government would draw down its oil savings in the Excess Crude Account to compensate for the drop in revenue to keep the budget deficit under control, according to a Bloomberg report.

Savings in the special crude account have dropped by half as President Goodluck Jonathan’s government tries to make up for the drop in oil revenue and fund a deficit that has reached 2.5 per cent, according to the Central Bank of Nigeria.

With the 2013 budget based on a daily output of 2.53 million barrels and an oil price of $79 a barrel, the country expects revenue of almost $80bn from exports.

In the first half of the year, oil receipts amounted to $28.2bn, more than $7bn below the estimate, according to central bank figures.

“What is amazing now is that we’ve had this quantity of shock and we were able to weather it. You can say theft, but it’s still a quantity shock,” Okonjo-Iweala said.

Nigeria depends on crude exports for about 80 per cent of government revenue and 95 per cent of export income.

According to Bloomberg, criminal gangs tapping oil from pipelines for illegal sale have posed the biggest threat to output since a government amnesty in 2009 reduced armed attacks led by rebels fighting for greater control of the region’s resources.

The Director of the Budget Office, Mr. Bright Okogu, who sat in on the interview with the minister, said the revenue shortfall due to output disruptions would probably be between $6bn and $12bn.

The government saves the balance of oil revenue above the budgeted price in the Excess Crude Account, which had a balance of just under $5bn, down from about $9bn, at the beginning of the year, according to Okonjo-Iweala.

The country’s vulnerability to shocks is heightened because of lower government revenue from oil, putting pressure on the currency, the CBN Governor, Lamido Sanusi, said in an interview in Oslo, according to Bloomberg.

He said, “The great challenge now is that the fiscal buffers are not as strong as they would be because of the revenue shortfall.

“If there are any adverse external developments; that will feed into this weak revenue profile and put pressure on exchange rates.”

The central bank draws down its foreign currency reserves to sell dollars at twice-weekly auctions to keep the currency within a band of three per cent around 155 per dollar.

The naira gained 0.2 per cent to 158.73 against the dollar on the interbank market in Lagos on Friday.

Bloomberg quoted the Chief Executive Officer, Financial Derivatives, Mr. Bismark Rewane, as saying, “This increases the pressure on the external balance, which means the external reserves and exchange rate will be under pressure.

“Once the external balance is under pressure, there is an underlying threat that will manifest in speculative attack against the currency.”

Okonjo-Iweala is seeking to meet a budget deficit target of 1.9 per cent of gross domestic product this year. The shortfall reached 2.5 per cent in the second quarter during the peak of the output outages, according to data from the central bank.

President Goodluck Jonathan is due to present his 2014 budget to lawmakers on November 12.

“When there’s a breakage, the impact is that the pipes are shut down, the effect is that 400,000 barrels are shut down. The actual theft is like 70,000 to 80,000 barrels a day,” Okonjo-Iweala said.

The average price of Nigeria’s light, sweet crude has stayed above $100 a barrel this year. The official selling price of the country’s benchmark Qua Iboe crude for November loading was set at $3.50 a barrel more than dated Brent, the European benchmark, according to the Nigerian National Petroleum Corporation.

Income earned by Nigeria from crude exports, taxes and other sources are shared among the three tiers of government, including the federal, 36 state governments and 774 local councils.

At allocation meetings in August and September, funds received were not enough to meet expected allocations, prompting complaints from some state officials.

The disputes over allocations “are over. Everybody realises that we have to allocate what comes into the coffers,” Okonjo-Iweala said.