The Minister of Finance, Kemi Adeosun was at the IMF/World Bank meetings recently and spoke with the media on some of the critical issues facing the Nigerian economy. Here are excerpts;
World Bank loans
The Minister said the Federal Government is making significant progress in its negotiation with the World Bank and the African Development Bank for budget support.
“What we have applied for is budget support facility from the World Bank and with the AfDB. AfDB is at the advanced stage and for the World Bank, we have submitted a letter of development policy. Hopefully we are going into negotiation soon. We are therefore on course with raising the concessionary financing we need.”
Capital spending
She disclosed that the Federal Government has already spent about N770 billion on capital projects between the time the budget was passed in May and now. The government, she said, is already planning the next release.
“This budget is being funded by a combination of our IGR and the money raised from domestic market which will be complemented with what we will raise from international market.”
The Minister expressed confidence in the ability of the Federal Government to achieve its economic plan within the set time frame.
“When we started this journey, the plan was around fiscal consolidation and trying to remove the economy from consumption-driven to investment-driven. We are beginning to see the dividends in terms of reducing our recurrent expenditure, with releases into fiscal space to allow us take care of infrastructure”
She emphasized that infrastructure spending was key to growth. The capital spending released so far has gone into major projects like; roads, rail, airports etc. Infrastructure will unlock the needed growth in the economy.”
Oil prices
The Minister described the current stability in crude oil price as a good development for the Nigerian economy. She said, “The oil price has stabilized. It is good news in the short term and in the medium term. We expect the oil price to remain stable, it is good for us. We need predictability of revenue. One of the problems we face now is that oil price is very volatile and our revenue is volatile. Predictability will enable us plan.”
The Minister said Nigeria has learnt its lesson from its recent experiences.
“We have learnt our lessons, we have seen the oil price gone up as high as $110 in the past and the lesson we have learnt really is; it is not about how high the oil price is or how low but how well we spend the money. In terms of our planning, we have been conservative. I believe the 2017 oil price benchmark staying well below $50 so that we are safe and we are not subject to any fluctuation in oil price.”
Government changes the way oil industry is financed
Apart from dealing with some of the issues in the Niger Delta region, the Minister disclosed that the government is changing the way it finances the oil industry.
“In the past, there were joint ventures which were funded from the treasury and it is called the cash-call arrangement. We need to get out of cash calls.
“There is private money available which can be used to fund oil exploration and we have signed agreement through the NNPC with oil majors to do the modified arrangement where we borrow money from the local market, and other private capital to fund crude production.
This new approach will increase oil output because one of the challenges in Nigeria was that we were not meeting up with the cash call arrangement, we couldn’t meet our obligations and that means the quantity of oil we could have been producing, we weren’t producing it. By moving out into the private space where there is money, I don’t see any reason why we would not be able to meet our quota.”
On Central Bank’s flexible exchange rate
The Minister also said that Nigerians will soon begin to see the flexible exchange rate regime of the Central Bank of Nigeria.
The Minister, who admitted holding series of meetings with the monetary authorities said, “. I think the CBN itself has said it is committed to a flexible exchange rate, we do need to make some adjustment and am confident that they will do so and it will address the shortage, but what is driving the shortage is oil price because 90 percent of our foreign exchange proceeds are from oil, so with a more sustainable oil price, inflows will rise and get the quantity back up that’s the sort of confidence market needs.”
Eurobond vulnerability to fed’s rate hike.
She said the Federal Reserve’s hiking of rate would not affect the Nigerian economy negatively in view of the plans being put in place by the current administration.
She said, “I think, we looked at the market and we have got negative interest rate in Japan, a lot of pension money on a negative rate, am not sure how much the Fed will do that will harm those flows. We saw the Ghana deal, which closed four times oversubscribed. I think that’s appetite for Africa, for African investment and I think as long as we can put together a compelling macro investment story, I think there is enough money out there to meet our needs.”
