Photograph — Brookings Institution

Nigeria is considering cutting its $28 billion (₦10.6 trillion) record budget for the year by at least $4.90 billion (₦1.5 trillion), finance minister Zainab Ahmed said this week, as the government reacts to the economic fallout of the coronavirus outbreak.

The pandemic has taken a massive toll on Africa’s largest economy and biggest oil producer after causing a dent in global demand for the resource which accounts for roughly 90 percent of the government’s foreign exchange earnings. A subsequent oil price war between Saudi Arabia and Russia has only worsened the situation as oil prices plunged to record lows this week.

Ahmed last week said there would be a cut in the 2020 budget, in which the spending plan was drafted using crude production of 2.18 million barrels a day at a price of $57 per barrel. But as of Wednesday, the international benchmark Brent crude reached a 16-year low of about $25 a barrel but rose to near $30 on Friday.

The budget benchmark has now been lowered by over 45 percent. “We are working on a worst-case scenario of an oil benchmark of $30 per barrel and a production of 2.1 million (barrels a day),” Ahmed told reporters at a briefing after a Cabinet meeting in Abuja. There will also be a similar adjustment in the projected Customs revenue of N1.5 trillion as the government anticipates a reduction in trade volumes.

“The reduction of the crude oil price… means that we are going to get so much less revenue, almost 45 percent loss as we planned. And because of that, we have to amend a number of projections in the budget as well as in the MTEF to reflect our current reality,” the minister said.

According to her, adjustment to the Medium-Term Expenditure Framework will involve a cut of 20 percent from the capital expenditure and 25 percent in recurrent spending. But the country’s private sector has cautioned the government over the budget cut, saying the reduction should come from recurrent expenditures rather than capital spending.

Citing recent realities, the Nigeria Employers’ Consultative Association urged the government to curb wastes and institutionalize a roadmap for the rapid diversification of the economy to reduce the economy’s dependence on a commodity in which it has no control over the pricing.

“It is time to deliberately create a roadmap for a rapid diversify of the economy away from oil,” said Timothy Olawale, NECA Director-General. “We need actions; the government needs to create avenues for more economic activities to happen like diversifying the tax revenue of the government beyond oil.”

Olawale further said the N1.1 trillion interventions by Nigeria’s Central Bank for sectors affected by the COVID-19 outbreak should be deployed in funding infrastructure projects that would improve access to markets for farmers and SMEs as well as reduce the operational costs to increase non-oil exports. “The stimulus by the CBN, if strategically deployed will not only keep the wheel of economic activities going but will also protect jobs and stop the slide in recession.”

According to him, the real sector should also be urgently supported to improve capacity utilization and create jobs while the virus outbreak highlights the need to support the health sector, particularly local drug manufacturing companies and health laboratories.

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