The Federal Government of Nigeria has projected that monthly FAAC receipts may decline to below N400 billion, over the next three to six months.
Based on the fiscal assumptions underpinning the 2020 Appropriation Act, monthly federation account (FAAC) disbursements to the federal and state governments were projected at N888.5 billion.
However, due to the significant drop in international oil prices, FAAC monthly disbursements have declined in recent months to N716.3 billion in January and N647.4 billion in February and N581billion in March 2020.
Mrs. Zainab Ahmed, Honourable Minister of Finance, Budget and National Planning, in a ministerial press statement on fiscal stimulus measures in response to the COVID-19 pandemic and oil price fiscal shock in Abuja, stated: “Our experience shows that monthly FAAC receipts must average at least N650 billion for the federal and state governments to meet their current obligations”. Unfortunately, we project that monthly receipts may decline to below N400 billion, over the next three to six months.”
In order to address the emerging fiscal risks, Mr. President has given a number of approvals. He has approved that the sum of US$150 million be withdrawn from the Nigeria Sovereign Investment Authority (NSIA) Stabilisation Fund to support the June 2020 FAAC disbursement.
The Stabilisation Fund was created for such emergencies and is to be utilised for this purpose.
Mr. President has also approved that the Federal Ministry of Finance, Budget and National Planning should engage with the Central Bank of Nigeria (CBN) to agree on a debt and interest moratorium for states on federal government and CBN-funded loans, in order to create fiscal space for the states, given the projected shortfalls in FAAC allocations.
“Accordingly, once monthly average FAAC receipts fall below a specific threshold, interest and capital payments by states shall be suspended till monthly average FAAC receipts exceed the threshold. The details of this moratorium will be expeditiously worked out with a view to submitting the final proposals for Mr. President’s guidance and final approvals,” Ahmed stated.
In her words: “The intervention is vital to create fiscal space for the States, as they deal with the health and economic impact of the crisis. States will also be encouraged to explore similar arrangements on their outstanding debts to commercial banks.
Speaking about ensuring adequate supplies of essential food items and critical medical supplies, as well as appropriate stewardship of donated items and funds, the Honourable Minister noted that the responses to the COVID-19 Pandemic and the impact of the 14-days’ lockdown would have a significant impact on the transportation, distribution and availability of essential food items and medical supplies.
Furthermore, the government, according to her, recognises the adverse implications of these extraordinary measures for our market women, farmers, traders and smaller businesses.
Ahmed made reference to the Finance Act, 2019, saying, “The Finance Act, 2019 fortuitously provided significant tax relief for micro, small and medium-sized enterprises (MSMEs). Corporate tax rates for medium-sized enterprise were cut from 30 percent to 20 percent, and SMEs are completely exempt from corporate taxation.
This tax relief will be invaluable for businesses in the large informal sector that earn N25 million or less in a financial year. The Finance Act, 2019 has also expanded the value added tax (VAT) exemption list for essential food, medical supplies and other basic items that are critical in our efforts to address the COVID-19 pandemic.”
Appreciating the efforts of public-spirited Nigerians who have contributed towards the fight against the pandemic, when also speaking about the collection, management and reporting of these donations, the Honourable Minister also said: “We deeply appreciate the overwhelming show of solidarity by public-spirited individuals and corporate bodies towards combating the COVID-19 pandemic through financial and material contributions.
“In this regard, the government recognises its responsibility to put an adequate framework in place for the collection, management and reporting of these donations. Accordingly, the Federal Ministry of Finance, Budget and National Planning has developed a comprehensive framework for the transparent management of the contributions.”
In the interim, Mr. President has also approved the opening of five commercial bank accounts as transit accounts to the treasury single account (TSA). This, according to her, is in order to better mobilise donations from the generality of the people and corporate bodies across the nation, create flexibility and make it easy for citizens that want to donate while maintaining the sanctity of the TSA.
Going forward, the COVID-19 donor accounts, which will form part of the existing TSA arrangement, have been opened with the following banks: Zenith bank, Access bank, Guaranty Trust bank, UBA; and First bank. “Other banks will be included in this initiative as the need arises.
These accounts will be linked to the main TSA for ease of monitoring and reporting.
“Finally, we will be issuing circulars and Ministerial Orders to ensure that charitable donations by benevolent companies to support our COVID-19 pandemic efforts are tax deductible, in line with Section 25 of the Companies Income Tax Act.
Also considering the place of the amendment of 2020 Appropriation Act, Ahmed said: “The 2020 Appropriation Act was based on certain fiscal assumptions, which we have been compelled to revisit, given the emerging economic realities. Specifically, projected oil revenues have been significantly affected in that: Dated Brent oil prices fell to as low as US$19.125/barrel (03.04.2020) as compared with the 2020 budget benchmark of US$57/barrel; and oil production in 2020 year-to-date is 1.9mbpd (before the current crises) as compared with the 2020 budget’s projection of 2.18mbpd.”
“We are therefore revising the benchmark oil price for 2020 to US$30/barrel and oil production to 1.7mbpd. We have similarly had to adjust downwards our non-oil revenue projections, including various tax and customs receipts, as well as proceeds of privatisation exercises. In this regard, the Budget Office is currently working on amendments to the medium-term expenditure framework (MTEP 2020-2022) and the 2020 Appropriation Act.
“The proposed amended budget will provide for the COVID-19 Crisis Intervention Fund and other adjustments required, due to the decline in international oil prices. We have also commenced consultations with the leadership and key Committees of the National Assembly to discuss our plans, such that once the Executive’s 2020 Amendment Budget is completed, we shall expeditiously seek presidential and legislative approvals for this revised appropriation.
*Abdullahi is Special Adviser (Media & Communications) to Finance Minister