National Assembly Passes MTEF, Okays N305/$ Exchange Rate, Raises Benchmark to $44.5

The Senate yesterday in Abuja passed the 2017-2019 medium term expenditure framework (MTEF) and fiscal strategy paper (FSP), retaining the exchange rate of N305 to $1 as proposed by the executive but raised the proposed oil benchmark of $42.50 in 2017 budget to $44.5 per barrel.

The Senate decision was the fallout of the adoption of the recommendation of the Joint Senate Committee on Finance, Appropriation and National Planning on the document.

Presenting the report, the joint committee chairman, Senator John Enoh, observed that the huge gap between the official exchange rate and what is obtainable in the parallel market had created what he described as several loopholes in the system.

He, however, commended the recent migration from fixed exchange rate regime and flexible exchange rate regime but tasked the Central Bank of Nigeria (CBN) to put in place measures meant to close the gap between parallel market and the official exchange rate.

According to the committee, there has been a slight improvement in the global demand for crude oil adding that “a weaker US dollar and improving sentiment on broader financial markets have also boosted crude oil price.”
Defending its decision to raise the oil benchmark, the committee said international oil industry watchers have forecast that oil prices are gradually heading towards $60 billion.

But the committee retained 2.2 million barrel per day oil production volume, observing that the projection is achievable if the federal government makes concerted efforts to stem the tide of militancy in the Niger Delta.
It recalled that disruption of oil installations in the region resulted in fluctuations in oil production in 2016, pointing out that production dropped from 1.912 million barrel per day in January 2016 to 1.721 million barrel per day in June before later declining to 1.721 million per day in October.

The committee also recommended the approval of the federal government’s borrowing plan of N2.321 trillion, made up of N1.253 trillion as domestic borrowing and N1.067 trillion external borrowing and charged the federal government to be focused and ensure that the loans are used to finance critical projects capable of increasing productivity which will in turn yield revenue to service the debt.

It also approved government independent revenue projection of N807.57 billion as contained in the revised MTEF and FSP just as it approved the projected N5.122 trillion non-oil revenue in 2017. It tasked the revenue collection agencies to “intensify their revenue collections drive to boost the non-oil components of the revenue.”

But Senator BEN Murray-Bruce (Bayelsa East) faulted the approval of N305 exchange rate, describing it as baseless and out of tune with the current realities, bearing in mind that dollar cannot be exchanged at that rate any where in the country.

He said: “You have pegged the exchange rate at N305 to the dollar. Now, this is fine, however, nobody in this room today can go to the bank and buy the dollar at N305 and so, we have an exchange rate that is ridiculous. The black market is about N500 and it is only about N200 differential. Between 1960 and 1980 despite the civil war, when (Chief Obafemi) Awolowo was federal Commissioner for Finance, the country was moving on without borrowing a penny. In the exchange rate between the official and black markets, there was no differential. In 1980, it was $1 97cents to the Naira and the difference between official and black market was N10kobo.

“When (Shehu) Shagari was overthrown in December 31st in 1983, the official rate of exchange was N3 to the dollar and the black market was N4 to the dollar. So, it was a N1 differential. Three years ago, it was a N10 to N15 differential between the black market and the official rate.

“Today, it is N200 and so, it is better for businessmen to round trip than to manufacture. The point I am making is that the exchange rate we have is encouraging round tripping. When the exchange rate encourages round tripping, we will never close the gap because the richest people in Nigeria today are treasurers of banks. The exchange rate is wrong. N305 is unrealistic and that is the point I am making.

“The currency should float and it has been floating since independence and for it not to float means that the naira will never be strengthened. For the past two years, the naira has consistently been devalued from N225 to N500. Let us address the issue of foreign exchange. Please, let it float,” Murray-Bruce pleaded.

Also yesterday, the Senate urged the federal government to initiate the process of synergising between the United Nations (UN), donor agencies, non-governmental organisations (NGOs), federal, state and local governments with a view to ensuring effective co-ordination of humanitarian response in the interest of internally displaced persons (IDPs) as well as victims of insurgency in the North-east.

This resolution was the aftermath of a motion by Senator Ali Ndume (Borno South) where he highlighted the growing severity in humanitarian crisis in the North-east as he observed an over 73 per cent in donor funding for the humanitarian response in the region.

According to him, the UN Office for the Co-ordination of Humanitarian Affairs (UNOCHA) reported that over $426 million (N130 billion) had been received as at December 2016 while an estimated N36 billion worth of funding for food security had also been donated to avert food crisis.

Ndume further noted that despite these huge donations, malnutrition has reached an alarming rate in some parts of Borno, Yobe and Adamawa States with 4.7 million persons “projected to be in the integrated food security phase classification (IPC) three to 5.2 by June 2017.”

He added that no fewer than 7 million persons in the North-east were in dire need of humanitarian assistance while 2.5 million children were also said to be malnourished while 1 million children lack access to school.

He also noted that even though N5.7 billion had been donated to address health and sanitation matters, the region is being ravaged by health crisis with many persons in critical health conditions and high prevalence of severe morbidity and mortality. He also lamented lack of access to water, shelter, latrines and shower facilities which he described as fore runners to communicable diseases such as cholera.

Also the House of Representatives yesterday passed the 2017-2019 MTEF but increased the crude oil benchmark to $44.5 per barrel, from the $42.5 proposed by the Federal Government.

The lawmakers maintained the proposed oil output of 2.2 million barrels per day for the 2017 budget.The document was approved with N305/US dollar, N5.122 trillion as projection for non oil revenue and N807.57 billion as projection for federal government independent revenue.

These followed the adoption of the recommendations of the report of the Committees on Finance, Appropriations, National Planning and Economic Development, Legislative Budget and Research, and Aids, Loans and Debt Management.

The Chairman of the Finance Committee, Hon Ibrahim Babangida, said the joint committee took the decision to increase the oil benchmark following technical consultations which took into account the increasing price of crude.
“The price was $55 as at the time we met them (Federal Government team), so we arrived at an average of $44.5. We also had to consider that the non-oil revenue was low,” he said.

The report called on the Central Bank of Nigeria to initiate measures to close the gap between the parallel market and official exchange rate. It also called on revenue generating agencies to intensify their revenue collection drive to boost the non oil components of revenue.

“…recommends the adoption of the 2017 borrowings but insist that the new borrowings should be on a project tied basis. In borrowing more, government must remain focused and ensure it is used to fund critical projects that will increase productivity and also contribute to financing of such debt,” it read.

“Government should implement drastic measures to achieve self sufficiency and become an exporter of certain agricultural and mining products. In addition, increase in the local production of maize, soya, poultry and livestock, etc, must be emphasized so as to achieve self sufficiency as well as attracting investments into solid minerals, tourism and entertainment sectors,” the report added.