The Federal Government plans to remove subsidy in petroleum products, cut recurrent spending; the overhead cost of running government in Ministries, Departments and Agencies (MDAs), to reduce the budget deficit to a manageable level of three per cent of output while boosting infrastructure investment to create jobs.

Finance Minister and Coordinator of the Economy, Dr. Ngozi Okonjo-Iweala, said yesterday while speaking on fiscal discipline and freeing more funds from recurrent budget for more attention on capital. She said the move would affect all arms of government and all categories of staff.

According to her, the current situation where recurrent budget takes an entire 75 per cent of total budget could not support the type of aggressive capital development that Nigerians yearn for and must therefore be addressed in such a way that it could be reasonably reduced. Continuing she said “We need to change the budget process in this country. We can not bring a budget and then have reservations that go back and forth. The executive has its responsibility and I hope the lawmakers will also take responsibility. By 2013 we will have a much saner budget process.”

Macro-economic stability
In her maiden press briefing in Abuja she said: “We need to maintain macroeconomic stability. We need to manage our fiscal situation in a more prudent manner. Monetary and fiscal policies must work hand-in-hand.” On fuel subsidy, she said: “There has been a lot of debate on fuel subsidies and we have all resolved that (removing it) is a good direction to go on. You have to leave it to us to decide when it is prudent to do so.”

Ngozi Okonjo-Iweala said: “Nigeria will reduce recurrent expenditure by at least one per cent a year in the next four years, which would bring it down to 70 per cent of the budget by 2014. Recurrent spending accounts for 74 per cent of the country’s N4.5 trillion budget. The minister said she favoured the Central Bank’s policy of pegging the naira to the dollar to provide stability for businesses, and promised to work with Governor Lamido Sanusi to have an exchange rate that “reflects the economy.”

Okonjo-Iweala further said that Nigeria’s total debt figure is currently $39.7 billion which is about 20 per cent of its Gross Domestic Product, GDP, even as she unveiled the priority sectors with which to drive the economy. She said she would critically review the borrowing processes with a view to reducing the rate, especially the domestic debt. Her words: “One of the things we would do is to pay attention to the debt situation. I know that many Nigerians are looking at it with concern, and you know my stand on debts. We have about N5.2 trillion in domestic debts and about $5.3 billion in external debts bringing total debt figures to $39.7 billion which is about 20 per cent of GDP, Gross Domestic Product.”

Total debt figure
The minister noted that the total debt figure as a percentage of GDP was not worrisome, as according to her, debt/GDP ratio could become of concern if it hits the 60 per cent threshold, in line with international norm. She said the external debt was “extremely low” but that the domestic debts mainly in Federal Government Bonds and Treasury Bills would be brought down through a systematic approach.

She identified job creation, building critical infrastructure especially electric power and roads/ rails, anti-corruption, agriculture, manufacturing, fiscal discipline, investment climate reforms, housing, entertainment, as well as, oil & gas as sectors of immediate focus. She told journalists that Nigeria was not used to trade-offs but that this administration would do so by paying greater attention to the priority sectors.

According to her, “this is not to say that other sectors are not important. It is just that we need to prioritise in the economy. One thing we are not used to doing is creating trade-offs and saying which are the key sectors, we need to focus on. So now we have to make some trade-offs.” Okonjo-Iweal warned that addressing the present challenges won’t be easy and that she did not have the magic wand for a quick-fix. She assured, however, that with the cooperation of good spirited Nigerians, the National Economic Implementation Team won’t disappoint. She said: “The present situation is not going to be an easy one and if you have a budget coming, you have to make choices.”

Specifically on power, the minister said, “All Nigerians know and many opinion surveys have shown that the thing that Nigerians are most interested in is improving our infrastructure in this country. Something that they can see with their eyes; power and roads as well as the rail and air transport. Nigerians are keen to see improvements and this is very important for us.”

She said that the problems bedeviling the Nigerian economy were built up over a long period of time and that Nigerians should not expect a magic wand from her in the efforts to fix the economy. “I have talked of the challenges that we face. There is no magic wand. I have seen some people writing about one magic wand that will be waved. Certainly not by me, I do not have any magic. There is no single person who can solve the problems of this country. We are a team here in the Ministry of Finance. The President has created the Economic Management Team and we have an Economic Management Implementation Team, because the other team is large, we need a core of people to push implementation.

Implementation team
“We will do the much we can but we can’t promise magic but we have got this implementation team that the President has inaugurated and we will do our best taking these problems one-by-one and trying to push on all fronts.” On the Sovereign Wealth Fund which governors have called for its suspension, Dr. Okonjo-Iweala disclosed that the executive had engaged the governors with a view to convincing them to allow it to be established as earlier agreed. She said that the federal government recognised the reality of the recent review in workers= wages but that she was convinced that the governors also realised that the nation had just one economy.

“They are reasonable people. We are talking, we are dialoguing and I am sure we will come to a conclusion that would be beneficial to the economy.” Nigeria’s reliance on oil exports meant fiscal prudence was even more important given the volatility of global oil prices in recent months during the crisis in North Africa, the minister said.
Dollar crashes in parallel market as CBN intervenes.

Meanwhile the dollar yesterday crashed to N160 at the parallel foreign exchange market following the sale of $50 million special intervention foreign exchange to bureaux de change by the Central Bank of Nigeria (CBN). As at the close of business yesterday the parallel market exchange rate had fallen to N160 per dollar from N163 on Tuesday and N165 on Monday. The rates have been going down rapidly since morning. Some people are selling as low as N158 per dollar@, said Harrison Owoh, Chief Executive H.J Trust BDC. The increased supply, which is aimed at narrowing the gap between the official and parallel market exchange rate is being offered through five banks at stipulated exchange rate.

It was gathered that the $50 million foreign exchange is different from the usual autonomous foreign exchange which banks sell to BDCs, and it is also different from the $100,000 weekly official foreign exchange sale to BDCs. The special foreign exchange sale represents the third measure by the apex bank to address the gap between the official and parallel market exchange rates which rose sharply to N14 in July from less than N4 in June in response to the limit imposed on amount of foreign exchange banks can sell to BDCs. The limit which was introduce by the CBN on June 24th pegged bank=s sale of autonomous dollars to BDCs at $250,000 per week per bank.

This caused severe demand gap in the retail-end of the market, which propelled the parallel market exchange rate to rise as high as N167 per dollar. The concomitant wide gap between the official and parallel market exchange rate induced upsurge in foreign exchange round-tripping as foreign exchange operators particularly the banks and oil firms exploited the wide gap to make huge profit.

No problem as long as they start with the senators.