What “structural adjustment” is @NOIweala proposing for our economy?

by Tunji Andrews

Minister of Finance and Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala, has indicated that Nigeria’s economy may need to make some structural adjustments in order to safely navigate through the waters of uncertainty on the horizon. Falling global crude prices, with growing capital flight from concerns around the 2015 general elections, have continued to be a source of concern for managers of the Nigerian economy.

With concerns that the National Assembly may peg the crude oil benchmark for the 2015 fiscal year at $78 per barrel as against $77.5 benchmark in the ongoing year, Okonjo-Iweala noted that the nation may need to raise its excess crude account, which currently stands at $4.1 billion to $5 billion.

While emphasising that Nigeria is not broke, Dr. OKonjo-Iweala, when appearing before the Senate committees on Finance and National Planning, during consideration of the 2015-2017 Medium Term Expenditure Framework, MTEF, as a working document for the 2015 Budget, said that Nigeria had enough assets to weather any storms that may come. According to the minister, Nigeria has two to three months of rainy day savings to cushion it while “contingencies are put in place” should world oil prices continue to fall.

She said, “That is why when people say the country is broke, I say ‘absolutely not’ because if we wanted to mobilise any of our assets to cover, we could do that. Of course it could take a little bit of time.

“However, that does not mean that we cannot have some cash flow fluctuations, we just have to manage it because we have an economy that is reasonably self sufficient. We are able to manage ourselves well while everybody is willing to do a few things and we should be able to get there.”

In what seemed like a subtle dig at the National Assembly on issues concerning crude oil bench marks and revenue projections, Okonjo-Iweala said, “My belief is, no matter what is settled on at this point in time, what is pleasing and that brings us all together is the realisation that what we were trying to say a few years ago has happened and it is happening in front of us and all of us need to come together to find a solution.”

She however went on to say that, “Whatever the decision will be, even if we agree on another benchmark, we still need measures to be in place because we have no idea whether it is going to go.

Though Okonjo-Iweala also agreed that lower oil prices would provide a stronger incentive to government to rein in oil theft, which has cost billions of dollars a year, and help to drive through stalled oil sector legislation to stimulate production. Also noting that the FG may need to take a critical look at recurrent expenditure, while identifying and eliminating overlapping agencies.

“Whatever the decision will be, even if we agree on another benchmark, we still need measures to be in place because we have no idea whether it is going to go.

The FG has also moved to raise the targets of the key non-oil revenue agencies for the next fiscal year in order to insulate the economy against these anticipated shocks. The minster said there was a plan in place to implement an increase in the revenue benchmark targets for both the Federal Inland Revenue Service and the Nigeria Customs Service.

Recently though, at the IMF/World Bank Annual Meetings, the World Bank, arguably prompted by recent global trends such as the drop in oil prices, had advised the Nigerian Federal Government to increase its fiscal buffers by raising the excess crude account from $4.1 billion to $6.3 billion, a 54% increase.

In 2004, Nigeria established an Excess Crude Account (ECA) in the hope of creating a stabilization fund to provide cushioning against such shocks as the oil price drop by delinking government expenditure from oil revenues. The account has been used to save oil revenues above a base amount derived from a defined benchmark price. Also in 2011, the Nigerian Senate approved the Nigerian Sovereign Investment Authority (NSIA) Bill which sought to establish a Sovereign Wealth Fund (SWF) to further manage the excess profits from oil.
Proceeds from crude oil sales, less the benchmark per barrel, are then sent to account to provide funds for the sort of rainy day Nigeria may soon experience.

Going forward, it appears that aside from several cuts, diversification of revenue generation and more, Nigeria is expected to dip hands regularly into the ECA to mitigate any shortfalls in revenue. Knowing that the economy which depends largely on oil, a factor to which crude oil theft has greatly affected in the past and now added to the recent fall of prices, may affect the amount of revenues accruable from the sale of crude.

Comments (12)

  1. iweala brings ideas to he table

  2. okay.

  3. we habe heard, hope its really boost the economy as claimed

  4. issorai, hope it works

  5. this woman is so brilliant, she konws how to make it work

  6. anything that will boost the economy is allowed ma

  7. good move

  8. like the one babaginda did that failed rite?

  9. structural adjustment programme

  10. i trust iweala on whatever she does

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cool good eh love2 cute confused notgood numb disgusting fail