Dwindling Revenue: We’ll Not Be Able to Pay Salaries in Coming Months, Govs Cry Out
Lagos Chamber of Commerce and Industry (LCCI) has raised the alarm that Nigeria’s economy might relapse into recession in the second half of 2022.
•LCCI raises the alarm on impending economic recession, looming food shortage
•Identifies oil theft, petrol subsidy as threat to Nigeria’s sustainability
Udora Orizu in Abuja and Dike Onwuamaeze in Lagos
The 36 state governors have raised the alarm that they may not be able to pay salaries in the coming months as a result of dwindling revenue from the federations account.
Also, the Lagos Chamber of Commerce and Industry (LCCI) has raised the alarm that Nigeria’s economy might relapse into recession in the second half of 2022, due to the burden of petrol subsidy and government’s dwindling revenue.
The Governors under the auspices of the Nigerian Governors Forum (NGF) expressed their concern in a presentation before the House of Representatives ad-hoc committee investigating the daily consumption of the premium motor spirit (PMS) in Nigeria.
NGF Head of Legislative Liaison, Peace and Security, Fatima Usman-Katsina, accused the Nigerian National Petroleum Company (NNPC) Limited of arbitrary deduction from revenue accruable to the federation account as well as the dwindling fortune of remittances to the federal coffers.
Usman-Katsina said FAAC net oil and gas revenues have been declining since 2019 and were projected to decline significantly in 2022 by between N3 billion and up to N4.4 billion unless action was taken urgently.
She said: “Although the operating environment has significantly worsened since the report was released, with NNPC now consistently reporting zero remittance to the federation accountant as profit from joint venture (JV), production sharing contract (PSC) and miscellaneous operations, the position of the Forum remains generally the same.
“The report had noted that FAAC net oil & gas revenues have been declining since 2019 and are projected to decline significantly in 2022 by between N3 billion and up to N4.4 billion unless action is taken now.”
She further said the NGF findings revealed that remittances to FAAC have continued to shrink as NNPC recovers shortfall ‘quite arbitrarily’, from the federation’s crude oil sales revenue.
“An analysis of the average monthly PMS consumption by states showed that a third of the country accounts for over 65 per cent consumption of PMS. The analysis showed that the Lagos, Oyo, Ogun, Abuja, Delta, Kano, Kwara, Edo, Rivers, Kaduna, Kebbi and Adamawa accounted for 65 per cent of PMS consumption in the country.
“Households directly consume only about 25 per cent of the PMS that is consumed nationally, with the remaining three-quarters being consumed by firms, MDAs, transport operators or smuggled to neighboring countries where the PMS price is nearly three times what it is in Nigeria.
“Of the PMS consumed by households, the richest 40 per cent of households account for over three-quarters of the PMS purchased by households, while the poorest 40 per cent of households purchased less than three per cent of all PMS sold in Nigeria.
“In the current fiscal regime, remittances to FAAC would continue to shrink as NNPC recovers this shortfall from the Federation as a result of crude oil price recovery. The report recommended a PMS pricing structure that addresses regional arbitrage and smuggling of PMS and provides additional revenue to the federation account.
“There is a significant market opportunity for additional export revenue streams for Nigeria to be given the price parity with our neighbouring countries.
“Privatisation of the three government refineries will reduce the recurring government expenditure on refinery maintenance and increase the country’s refining capacity. There were also economic risks highlighted in the report. Fiscal pressures are threatening Nigeria’s recovery, as rising prices continue to push millions into poverty,” she said.
The NGF further estimated that rising inflation between 2020 and 2021, was expected to have pushed an additional 5.6 million Nigerians into poverty.
The forum said, “Fiscal pressures are growing unsustainably with the PMS subsidy significantly reducing the flow of revenues into the federation account. Thirty-five out of 36 states are likely to see transfers from the federation fall (in nominal terms) between 2021 and 2022, with the average decline projected to be about 11 per cent.
“Most states are already experiencing fiscal stress, with 30 out of 36 states recording fiscal deficits in 2020, including Lagos and every oil-producing state except Akwa Ibom.
“With the projected decline in gross distributable federation revenues in 2022, fiscal deficits and debt burdens will grow even larger and faster. This will mean that transfers from the federation will not be enough to cover even salaries, and certainly not recurrent costs, which are growing in nominal terms.
“With the coming into effect of the Petroleum Industry Act, gross oil and gas revenues could be (much) lower than currently projected because of the new fiscal terms and the earmarking of deductible revenues specified in the PIA, and that could reduce net oil and gas revenues even further.”
Also, in a document submitted to the committee, the Nigeria Customs Service put the total volume of PMS imported into the country between 2015 and June 2022 at about 2,380,814,974.418 metric tonnes in 3,703 vessels, while 876,801,931.515 metric tonnes of PMS in 1,296 vessels were exported within the period.
However, the Nigeria Labour Congress (NLC) said the petrol being imported into the country on a daily basis was far above what was required daily and by extension much bigger than the national consumption capacity.
NLC President, Mr. Ayuba Wabba, in his presentation said this was done through over-invoicing or other processes of criminality at a huge cost to Nigeria and its people. According to him, the criminal enterprise was perpetrated by a tiny privileged clique accustomed to circumventing the rules.
He said one of the principal reasons for the frequent increase in the pump price of petroleum products was the presumption that Nigeria imports xyz volume of refined petrol for its internal consumption and the subsidy on this volume was so humongous and killing the economy.
LCCI raises the alarm on impending economic recession, looming food shortage
Meanwhile, the LCCI has also called for well-coordinated fiscal and monetary policies that would sustain the pace of economic recovery in 2022, encourage foreign capital inflows into the economy and enable Nigeria to navigate growing global uncertainties.
These views were expressed by the President of the LCCI, Dr. Michael Olawale-Cole, when he addressed a media briefing on the state of the economy on Tuesday.
Olawale-Cole said: “There are heightened fears of contracting output, constrained production, and recession risks as we navigate the murky waters of 2022.”
He added that, “in the third quarter, many factors will weigh on growth such as CBN’s rate. Rising energy costs with diesel above N800/litre, Jet-A1 at N710 per litre, and PMS selling above the government-regulated price of N165/litre will continue to aggravate production costs which may lead to restrained manufacturing and eventual job losses.
“We expect to experience some fiscal constraints because of debt overhang accompanied by a high debt service burden and heavy subsidy costs.”
He also added that, “with the cost of diesel at record levels and persisting poor power supply, businesses are running on unsustainable costs and producing at uncompetitive prices.
“This can lead to job losses if output is constrained due to the unbearable cost of production. If not quickly tackled, these challenges will likely subdue the GDP growth potentials and projections for 2022.”
The LCCI urged the federal government to take proactive measures that would boost agricultural output and ensure food security in a manner that would discourage continued dependence on food imports.
It warned that, “food security, scarcity is looming large on the horizon, and if nothing smart and quick is done, it would further exacerbate the plight of the poor.”
Olawale-Cole also declared oil theft and continued payment of petrol subsidy as national disasters and critical threat to Nigeria’s public revenue base.
He said: “The twin factors of fuel subsidy payments and crude oil theft have combined to deny Nigeria the gains of the high crude oil price on the international market.
“Nigeria is losing crude oil at the level of about 91 percent of output. Nigeria lost $3.2 billion in crude oil theft between January 2021 and February 2022, as revealed by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the LCCI’s Oil Producers Trade Section (OPTS), and the Independent Petroleum Producers Group (IPPG).
“This puts the figure at about N1.36 trillion when converted to Naira with the official rate of N416 to the dollar exchange rate. In the first quarter of 2022, oil theft was worth N434 billion (about $1 billion). This menace has prevented Nigeria from meeting its crude oil output capacity.”
The LCCI also tasked government on the need to create an enabling investment environment for the advancement of the Nigerian economy and the good of all investors and economic players through right policy and regulatory framework.
The LCCI cited the capital importation report that showed that Nigeria attracted a total of $1.57 billion in capital inflows in Q1 2022, which dropped by 28.1 per cent when compared to $2.19 billion recorded in the previous quarter.
It expressed concern that Foreign Direct Investment (FDI) constituted only 9.85 per cent of the capital importation in Q1’22.
“The concern here is that we need more FDIs to create jobs and increase output in the economy. We must tackle the worsening insecurity in many parts of the country and implement investment-friendly policies to create an enabling investment and regulatory environment.”
The LCCI also noted that Nigeria’s debt-service cost increased by 109 per cent from N429 billion in Q4 2021 to N896.56 billion in Q1 2022.
“The borrowings are significantly increasing and Nigeria is struggling to service these debts due to revenue mobilisation challenges and an increased fuel subsidy burden,” it said.
Source: ThisDay