Senate mulls devaluation of naira, budget reduction

The Senate is considering options to cushion the impact of the nation’s dwindling revenue. It might reduce the N10.594 trillion budget of 2020 and back naira devaluation.

Adopting the report of the joint committee it set up to advise the lawmakers on how to handle the effects of the fall in oil prices caused by the coronavirus epidemic, the upper legislative chamber hinted that the devaluation of the naira might be an option.

The joint committee which was presided over by Adeola Olamilekan, in its report, itemized issues for serious debate as “devaluation of naira; the reality of the current situation of the government in terms of number of agencies and parastatals putting into perspective the Oronsanye Panel Report; the need to prioritise both the social and the real sector of the economy looking at their importance to the overall benefit of Nigeria; loss of revenue as a result of gas flaring; and removal of oil subsidy.”

The Senate agreed with the committee’s suggestion that the downsizing of the Appropriation Act 2020 as passed by the National Assembly is inevitable. The upper chamber also charged the revenue generating agencies to be alive to their responsibilities.

The Senate President, Ahmad Lawan, hinted that the bid to secure a foreign loan might have failed, thus necessitating that the Federal Government should source loans or other revenue locally.

Lawan also lamented the delay by President Muhammadu Buhari in submitting the Petroleum Industry Bill (PIB), a development he noted has crippled the hope of a speedy resolution of some revenue and economic issues.

On the difficulty in securing the foreign loan, Lawan said: “Now that we know that it is difficult or even impossible to get the foreign loans that we had built our hopes and implementation of our capital budgets on, I think we have to be very ingenious as a country.

“We have to look inwards. The Central Bank of Nigeria has come up with some measures that are intended to support the economy. I think it requires a holistic approach, both fiscal as well as monetary policies, and if need be, we pass a speedy legislation to create an environment where our economy does not collapse, where the economy is sustained with internal resources. But we have to be very careful.

“If we have to now borrow as a government from the available domestic resources, we should be very careful that we do not crowd out the private sector from getting required loans. So it is going to be walking a tight rope. But we need to have a plan in which both the executive and the legislature come together. We need to listen to them really. I would probably suggest that, going forward, in the next one or two weeks, the entire Senate should have a briefing from the ministries of Finance, Petroleum and the Central Bank so that we are abreast with what is going on and then we can make our suggestions.”

Many of the lawmakers admitted that Nigeria was being confronted with a very dangerous economic problem that required emergency response.

According to the Chairman of the Committee on Appropriation, Jubril Barau, where Saudi Arabia spends only three dollars to produce a barrel of oil and Russia spends five dollars, Nigeria is currently producing a barrel of the same oil with 30 dollars.

He disclosed that the price of crude oil had reduced to below $29, forcing Nigeria to produce at a loss.

He warned of imminent economic woes ahead if Nigeria failed to act.

Bamidele Opeyemi advised that government should bar its officials from engaging in foreign trips at the expense of government.

The lawmakers, at their sitting last Tuesday, adopted a motion by the Leader of the Senate, Yahaya Abdullahi, on the urgent need to monitor and examine the current economic reality with respect to the sharp drop in the price of crude oil, the outbreak of the deadly coronavirus/Convid-19 and the uproar within the Organisation of Petroleum Exporting Countries (OPEC).

In Tuesday’s report as presented by Adeola, the joint committee said: “Also as part of the fact-finding mission of the committee on the effect of the coronavirus / COVID-19 and the sharp drop of crude oil price, we sought and receive different views from experts in finance and economy on the state of the economy and other wide range of issues as it affects the economy”

On the devaluation of the naira, it said that the Federal Government had come out to tell Nigerians that the devaluation of naira was not on its agenda.

According to the committee, “experts believe that funds from internal loans and bonds sourced from the capital market should be mobilized to fund infrastructural development.

“Experts believe it is time Nigeria should start to look beyond oil as a major source of revenue to the government and ensuring proper diversification of the economy.”

According to the joint panel, “the experts also noted that our shallow policy in agriculture is responsible for our dependency on oil as our major source of income. The government should show more commitment in returning the country as a major leader in agricultural produce both within and outside the African continent.”

In a related development, Lawan urged the World Bank to come to the aid of Nigeria in financing projects provided in the 2020 budget.

He made the appeal yesterday when the new World Bank Country Director for Nigeria, Shubham Chaudhuri, led a delegation of the bank officials on a courtesy visit to his office.

Lawan said it was time Nigeria needed the assistance of the World Bank most seriously, particularly when the coronavirus epidemic was making it difficult to raise revenue for the implementation of the 2020 budget.

“This meeting is a very important one coming at a time that Nigeria, particularly, is facing a lot of challenges of financing our infrastructural development. It cannot be more auspicious than this. But, of course, the world itself is facing economic upheaval of some sort because of the coronavirus or COVIC-19 infection across the globe.

“Nigeria has been involved with the World Bank for a long time now and you have been very supportive. But this is the time we need you most,” the Senate president said.

On the predicament faced in funding the budget, Lawan declared: “The 2020 budget was designed to be funded, in a very large part, by foreign borrowing especially for our capital projects.

“Nigeria is to take a loan of about $17 billion from China out of the $22.7 billion that was passed by the Senate. But today, we are not sure of what will happen because almost every country from where we are supposed to borrow the money is facing some challenges.”

He charged the World Bank country director to take Nigeria’s case seriously.

Earlier, the World Bank chief, Chaudhuri, told his host that “we are here to support the government’s programmes particularly as they relate to poverty alleviation, that is our ultimate goal.

“It is an opportunity for us to have your thoughts on where you will like to see us direct our support having in mind our ultimate mission is to help eliminate poverty.”

In a similar development, the House of Representatives has urged the Federal Government to critically evaluate the implications of the reduced demand for crude oil in the light of emerging trend of preference for electric vehicles by her major oil buyers

The lawmakers also urged the government to, without delay, commence genuine and far-reaching diversification and structural reforms of the economy from over dependence on oil revenues.

This resolution followed the adoption yesterday of a motion on “Economic Implications of the Production and Adoption of Electric Vehicles on Nigeria” moved by Ossy Prestige at the plenary.

In the motion, Prestige noted with dismay the bleak future for Nigeria’s oil exports as its biggest crude oil buyers and other major Asian and European customers are poised to do away with petrol and diesel-powered vehicles from year 2025.

According to him, the move by India, China, France, Netherlands and the United Kingdom that bought a total of 24.4 million barrels of crude oil from Nigeria in May of 2019, almost half of the nation’s total exports for the month, to stop the use of oil-powered vehicles as part of efforts to reduce pollution and carbon emissions, could spell trouble for Nigeria’s oil exports in the coming decades.

“The UK followed France in announcing that new diesel and petrol cars would be banned by 2040 in a bid to encourage people to switch to electric and hybrid vehicles; Netherlands as well has mooted a 2025 ban for diesel and petrol cars, Germany too, another major buyer of Nigeria’s crude in Europe, aims to have one million electric cars on the road by 2020, while India, the biggest importer of Nigeria’s crude, is considering even more radical action, with plans to support electrifying all vehicles in the country by 2030 while China equally has announced that it was looking to ban the production and sale of diesel and petrol cars and vans as well,” the lawmaker said.

Expressing worry that more countries could follow the same path, the lawmaker said the development could translate to a drastic reduction in the demand for crude oil globally and consequently, developing countries such as Nigeria with excessive dependence on crude oil revenues would experience serious and prolonged economic shocks from gradual moderation to reduction in crude oil demands

Prestige stated that the recent Bloomberg new energy finance report, which forecast that electric powered vehicles would be cheaper to buy than their internal combustion engine counterparts by 2025, also predicted that by 2040, there would be 530 million electric vehicles worldwide, comprising about one third of the fleet, which would displace roughly eight million barrels of oil production per day.

The lawmaker lamented that Nigeria was “not prepared for this shift politically, socially and economically, since the country failed to internally build capacity and capabilities to enjoy the benefits of its natural endowments, and equally refused to broaden the opportunities and ancillary services that are associated with crude oil and natural gas.”  (The Guardian)