Nigeria's finance minister moves to assure jittery financial markets over the weekend, as falling oil prices erode the country's revenue and investors sell naira assets from bonds to equities.
The Government is working out some surcharges on certain luxury items to make the country's rich pay a little bit more, as part of several quick measures to ramp up revenue shortfalls, Ngozi Okonjo-Iweala, co-ordinating minister for the economy and minister for finance, announced yesterday.
The government was adopting a multi-pronged strategic response to mitigate the adverse effects of the decline in global oil prices, which have seen a significant drop in oil revenues for Nigeria since June, Okonjo-Iweala said at a special press conference in Abuja.
Part of those measures is also that Medium Term Expenditure Framework (MTEF) and the Budget 2015 proposal to the National Assembly have been revised, as government now proposes a benchmark of $73 dollars per barrel to the National Assembly, compared to the earlier $78. Government spending would also be tightened, especially on foreign travels and trainings, going forward.
"The idea behind the surcharge is that those Nigerians who are well off would be made to contribute a bit more to making the government coffers more robust, so that they share a bit more of the pain," the minister told journalists in Abuja.
Nigeria, which relies on oil sales for 70 percent of government revenue, expects to produce 2.27 million barrels per day next year, generating revenue of N6.833 trillion ($39.8 billion), the minister said. This year's budget was based on output of 2.39 million barrels a day.
Markets may welcome the finance minister's moves, as investors had been seeking clarity from the country's economic managers.
"The Government is sending a message of calm to the markets and saying look we have a game plan and are not behind the curve," said the source.
Nigerian stocks rallied the most in the world last week, advancing for five straight days, as local buyers took advantage of lower prices paring the bourse's 2014 loss to 14 percent.
The naira strengthened for the first time in four days on Friday, gaining 0.6 percent to N171.15 per dollar by 4:54 p.m. in Lagos.
Government would tap up to half of the Excess Crude Account which now stands at $4.1 billion before the end of the year, to be able to meet up with expenditures that are crystallising at the moment, the finance minister said.
Despite the small fiscal buffers, Nigeria should be able to cushion the effects of sliding oil on revenues, by running budget deficits for the next two years, due to a low debt level, Fitch ratings said on Friday.
"Nigeria has the fiscal space to run deficits in the region of 4-5 percent of GDP for a few years, without undermining fiscal stability," Carmen Altenkirch, director of the sovereign group at the agency, said.
"Fiscal surpluses during the good years will give Nigeria scope to run deficits with lower oil prices."
Nigeria's fiscal deficit is low, expected at 1.03 percent of GDP in 2014, while inflation printed in single digits of 8.3 percent for September 2014.
Fitch rates Nigeria BB-, three steps below investment grade.
Okonjo-Iweala explained that even though the government has been working hard on several scenarios and contingency plans in readiness for any eventuality, it was important to proceed in a measured manner, based on a complete understanding of the challenges.
"Given the nature of the oil market, we needed to see the extent and trend of the oil price, in order to take the right measures. Panic is not a strategy. It's important that our strategies are based on facts and a clear understanding of both the strengths of the economy and the challenges posed by the drop in oil prices which is currently at $79 for our premium Bonny Light Crude."
Sources tell BusinessDay that the Government was concerned about a disorderly sell-off in the stock and FX markets, hence the need for a robust response from officials.
"There is a big difference between what is happening now and the 2008/ 2009 crises," the source said.
Two major factors make this period different from 2009. Nigerian banks are much healthier now than in 2009, with better risk standards and the rebased GDP showed a more diversified economy, which is potentially more resilient than most oil economies of the world.
Nigeria's banking system has returned to growth and profitability after AMCONs intervention.
Nigerian Banks have returned a Cumulative Average Growth Rate (CAGR) in gross earnings and PBT of 17.0 percent and 16.9 percent respectively, since 2009.
The Nigerian economy has seen growth rates of about 6 percent per annum on average in the last five years.