Senate approves MTEF as oil prices, Naira crash further

The Senate, yesterday, approved the Medium Term Expenditure Framework, MTEF, and Fiscal Strategy Paper, FSP, 2016-18 submitted by the Federal Government, basing the financial estimates on oil revenue at benchmark of $38 per barrel and exchange rate at N197/ $1. MTEF and FSP are the three-year fiscal plan from where the annual budget is extracted.
PIC.23. SENATE CHAMBER DURING THE INAUGURATION OF THE 8TH NATIONAL ASSEMBLY IN ABUJA ON TUESDAY (9/6/15). 3023/9/6/2015/CH/BJO/NAN
But the international oil prices and the domestic currency market at the parallel segment have all moved against both benchmarks, yesterday.
While the global oil benchmark, West Texas Intermediate and Brent Crude closed, yesterday, at $35.83 per barrel, down by 4.07 per cent and Brent Crude down by 3.25 per cent to $37.20 per barrel, the OPEC reference where Nigeria’s Bonny Light trades also closed lower at $32.6 per barrel, far below the Federal Government’s 2016 budget benchmark.
Similarly, while the official exchange rate has been retained by the Central Bank of Nigeria, CBN, at N197/ $1, the Naira crashed to N270 per dollar at the parallel market, yesterday.
Market operators blamed the continued crash in Naira value at the parallel market on constrains in the supply of the foreign exchange resources coupled with speculations that official devaluation is becoming inevitable following steady decline in foreign reserves and dollar inflow from crude oil sales.
The speculations appeared further fuelled by CBN’s reduction of quantity of foreign exchange supply to Bureaux de Change, BDCs, yesterday to $10,000, down by over 66 per cent from $30,000 per week.
At the backdrop of these developments, President Muhammadu Buhari is expected to present the 2016 budget estimates to the National Assembly on Tuesday  for further deliberations and final approval of the 2016 Appropriation Bill.
Single salary account  for all employees
Meanwhile, the Senate also approved, yesterday, that the Federal Government should, in 2016, establish a data base and possibly a single salary account for all its employees to help streamline and reduce its personnel cost.
The Senate also urged the government to sustain the implementation of Treasury Single Account, TSA, in 2016  with e- collection platform.
President Buhari had, Wednesday, December 8, forwarded the MTEF and FSP  to the National Assembly with far reaching economic proposals including scraping of oil sector subsidy.
President Buhari wrote the National Assembly yesterday, informing it of his readiness to present the 2016 Appropriation Bill to the joint session of the Senate and House of Representatives on Tuesday.
Senate President, Bukola Saraki, who read Buhari’s  letter at plenary, said the President had requested to address the joint session of the federal parliament on the 2016 budget at exactly 10:00 am.
The approval of the MTEF and FSP documents were sequel to a report by the Joint Committee on Finance, Appropriations; and National Planning and Economic Affairs by the Chairman, Senator John Owan Enoh.
Recommendations
In the approved MTEF report, the Senate also asked the Federal Government to sustain the current tempo towards increasing Federal Government internally generated revenue and diversification of the economy, as well as the projected increase in oil production from current 1.9 million barrels per day, mbpd, to 2.2 mbpd
Other recommendations of the joint committee as approved by the Senate were: “that the relevant committees of the National Assembly should closely and constantly maintain oversight over the ministries, departments and agencies, MDAs,  responsible for implementing special intervention programmes to ensure that the targeted benefits are achieved while safeguarding against abuses.
“The diversification of the economy should be accompanied with economic modernisation such that the economy can be more competitive and productive; arrears of 2015 fuel subsidy for domestic consumption as proposed in the MTEF be sustained;the funding of the infrastructural development stated in the MTEF should be clearly captured in the details of the 2016 Appropriation Bill;
“The National Assembly in close collaboration with the executive should as a matter of urgency consider an accelerated passage of the Petroleum Industry Bill (PIB) particularly those sections with implication on joint venture funding by the federal government (JV Cash Calls).”
In his remarks, Senate President, Bukola Saraki who noted that the contents of the MTEF document had clearly indicated that Nigerians were  going to a very challenging times in 2016 because the nation was still practicing a mono economy with a product that we do not control the price, stated: “We must continue to increase our independent revenue, we must make effort to increase our tax revenue and the committees should intensity efforts in their oversight activities.
“We must also work to reduce the level of borrowing and the executive should also comply with the senate recommendations on the MTEF particularly as regards to oil subsidy. The situations in the past where we submit MTEF and we then go to do something completely different I think should not be entertained again.”
Naira depreciates to N270/$ in parallel market
Vanguard investigation revealed that from N260 per dollar at the close of business on Tuesday, the parallel market exchange rate rose sharply to N270 per dollar in Lagos, indicating N10 depreciation.
But in Abuja, the parallel market exchange rate rose from N262 per dollar to close at N273 per dollar, indicating N11 depreciation.
BDC operators, who confirmed this development to Vanguard, said the sharp depreciation was due to further reduction in the weekly dollar sales by the CBN.
President, Association of Bureaux de Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, told Vanguard that though the CBN increased the number of BDCs it sold dollars to from 1,170 last week to 2,270 this week, it however reduced the amount of dollars sold to each BDC by 60 per cent from $30,000 to $10,000.
According to Mr. Harrison Owoh, Chief Executive Officer, H.J Trust BDC, the decision of the CBN aggravated the demand situation in the market.
He said: “There is huge volume of unsatisfied demand in the market. We had to turn down lots of request for dollars because there is no dollars to sell to them,” he told Vanguard.
An Abuja-based BDC operator, who spoke on condition of anonymity told Vanguard: “The dollar is selling at N273 in Abuja this evening. It was N262 in the morning. We are surprised at the pace of depreciation, because we can’t explain why it just went up by such margin in one day.”
Speculative reaction
On this development, Director, Corporate Communications, Central Bank of Nigeria (CBN), Ibrahim Mu’azu, said the reduction in dollar sales to BDCs is part of the demand management of the CBN in the foreign exchange market.
He said the depreciation of the naira to N270 per dollar is a speculative reaction to the development.
According to him, “the rate is not sustainable. This is because there are still other windows for end users to buy dollars at lower rate. They can buy dollars at the official rate from the deposit money banks, and from Travelex inside the airport. So by the time people know about these alternatives, the reaction in the parallel market, and the exchange rate will calm down.”
Further investigations reveal that the naira also depreciated heavily against the British pounds. From N365 per pounds at the close of business last week, the parallel market exchange rate rose sharply to N385 per pounds at the close of business yesterday.
In addition to the reduction in dollar sales by CBN, foreign exchange supply from autonomous sources is thinning due to hording.  “People are hording their dollars in anticipation of further depreciation of the naira, while some are demanding higher exchange rate before they sell,” said the Abuja-based BDC operator.


Vanguard