Nigeria’s External Reserves Hit $27.2bn

Yemi Osinbajo

• FG plans to sell $1bn Eurobonds in March
• Explains high personnel cost in 2017 budget

Nigeria’s foreign exchange (forex) reserves have increased to $27.223 billion as at January 16, 2017, according to latest figures on the Central Bank of Nigeria’s (CBN) website.

The growth in the reserves, derived majorly from the proceeds of crude oil sales represented an increase by $1.380 billion or 5.3 per cent in the last 17 days, compared with the $25.843 billion that it was as at December 30, 2015.

It was also indicative that the drop in militancy in the Niger Delta and rising oil exports led to the accretion in the forex reserves.

Oil prices settled up on Monday, as Saudi Arabia’s commitments to reducing production offset a report forecasting U.S. output would again rise this year.

Benchmark Brent crude oil LCOc1 was up 41 cents a barrel, or 0.7 percent, at $55.86 and U.S. West Texas Intermediate crude rose 27 cents, or 0.5 percent, to $52.64 a barrel, on Monday.
With the oil market entering 2017 with prices above $50 per barrel, analysts are optimistic about high prices this year.

Meanwhile, Vice President Yemi Osinbajo tuesday said the country needs to close the gap between the official and black market rates for the naira against the dollar “very soon”, as Africa’s largest economy grapples with inflation and the risks of devaluation.

“The gap between the official and parallel market isn’t helpful,” Reuters quoted Osinbajo to have told reporters at the World Economic Forum in Davos.

“If you look at the economic recovery and growth plan, it is the expectation that this is a conversation we are having with central bank.”

The naira’s official rate, controlled by the government is currently at N305 to the dollar since it was devalued in June. But that is still 40 percent stronger than rates on the parallel market, about N497 to the dollar, a gap that is discouraging investment from overseas and leaving Nigeria starved of foreign currency.

The official and black market naira foreign exchange rates will be “unified” this year, but there is no time frame for when it could happen, said Osinbajo.

Financial institutions, among others, have argued that Nigeria must allow its currency to float freely to solve its foreign exchange woes, a measure which has met opposition from President Muhammadu Buhari.

Nigeria’s lack of dollars has been exacerbated by a crunch in oil production, caused by militant attacks on facilities in the crude oil-rich regions in the South-east Delta region, and low global prices for oil, on which the government depends for 70 percent of its revenues.

“The current output is 1.7-1.8 million barrels per day and it could improve very quickly as soon as we sort out things in the Delta,” Osinbajo said.

In an effort to end militant attacks and remain “actively engaged”, Osinbajo travelled to the Niger Delta region for talks with militants earlier this week.

Additionally, Nigeria aims to sell Eurobonds worth $1 billion in March, said Osinbajo, rather than February as originally hoped, which could help refill the government’s coffers.

Budget Office Explains Increase in Personnel Cost
The increase in provision for non-debt recurrent expenditure in the 2017 budget is driven mainly by changes in the personnel and overhead cost outlays, a senior official in the Budget Office told THISDAY in Abuja on Tuesday.

In the 2016 estimates, non-debt recurrent expenditure was put at N2,646,389,236, 196, while capital expenditure was N1,587,598,122,03; but in spite of the federal government’s fiscal responsibility measures and the discovery of thousands of ghost workers, the provision for non-debt recurrent expenditure jumped up to N2,949,139,301,963, a difference of N302, 750,065,767.

At the interactive session with the House of Representatives Joint Committee on Medium Term Expenditure Framework (MTEF) on Monday, the Minister of Finance, Mrs. Kemi Adeosun, told the lawmakers that the federal government had made capital releases to the tune of N831billion to date, more than 52%. The 2017 provision for capital expenditure is N2, 078,941,770,803, about 31% of the entire proposed Appropriation Bill.

The source, who spoke with THISDAY in confidence, added that in a bid to drive down cost of governance, the federal government decided during the preparation of the 2016 Budget that a 6.5% across-the-board reduction in the 2015 budget personnel cost estimate per MDAs should be applied to arrive at the 2016 provisional budget estimates.

“While this was adopted with the hope that the full implementation of the IPPIS and other policies of the administration would help make some savings, the outcome was not as intended,” he explained.

He said this was largely due to inadequate budgeting provision for IPPIS implementation in the 2016 Budget; prompting the Office of the Accountant General of the Federation (IPPIS Department) in the course of the year to report that several MDAs had exhausted their respective 2016 Budget personnel cost provisions as early as the third quarter.

He also pointed out that the Presidential Initiative on Continuous Audit (PICA) also submitted claims of salary shortfalls for non-IPPIS MDAs, saying, “These partly necessitated the government’s virement request in respect of personnel cost.”

Since then, the source stated, several MDAs had continued to forward claims of unpaid personnel costs including promotion arrears, new recruitment and annual increments.

He added: ‘’So, in preparing the 2017 personnel cost proposal, verifiable salary shortfalls as reported by the Accountant General’s Office were consequently taken into consideration, a situation which resulted in the increase in 2017 Personnel Cost compared to the 2016 estimates.’’
It was also gathered that the further depreciation of the naira against the US dollar pushed up the salary (and Overhead costs) of Foreign Service Personnel particularly those of the foreign affairs ministry, immigration, and also military budgets.

THISDAY further gathered that just as it was with personnel cost, the overhead cost outlay was similarly reduced across board in the course of preparing the 2016 Budget.

However, within the fiscal year, several MDAs reported unpaid utility bills such as electricity, water, cleaning services, among others, a development which reportedly grounded activities in the affected MDAs.

‘’Learning from that experience, the MDAs were cautioned, while preparing the 2017 Budget, against allocating scarce resources to frivolous expenditures like foreign travels and training, overseas board meetings, colour-printing, and conference souvenirs. The savings from these exclusions were to be applied to areas of need’’, our source explained.

It was also learnt that some essential costs, which were omitted from some MDAs’ provisions in 2016 were considered in the 2017 proposal; especially in the Civil Defence Corps and National Youth Service Corps, because of their peculiar mandates.

Other variables responsible for the increase in the 2017 provisions include increase in electricity tariffs, fuel price hike, exchange rate and inflation, all of which have direct effect on increase in MDAs’ overhead costs.

On capital costs estimates, the source explained that government’s determination to achieve inclusive economic growth by stimulating the economy meant an upward trend in spending on key infrastructure such as power, transport, roads, rail, air transport, and housing, as well as in social infrastructure investments.

He added: ‘’Also importantly, the need for security provisions arising from insurgency, militancy and security threats in various parts of the country, as well as effort to achieve food security, largely contributed to the increase in this area.’’