Senate passes MTEF, adopts N305 to $1, $44.5 oil benchmark
*Exchange rate figure makes MTEF impracticable, unimplementable
By Sandra Onyekwere
After four long months of horse trading and politically-coloured intrigues since the submission by President Muhammadu Buhari, the Senate Wednesday passed the 2017-2019 Medium Term Expenditure Framework (MTEF) and fiscal strategy paper (FSP), retaining virtually all the figures of the parameters sent to it by the Executive.
The Senate had earlier declared the MTEF as empty. The passage of the document was sequel to the consideration of the report of the Senate Joint Committee on Finance, Appropriations and National Planning, presented during plenary by its Chairman, Senator John Enoh.
While considering the recommendations of the joint committee, the Senate adopted the exchange rate of N305 to $1 as proposed by the Executive arm of government.
This figure provoked arguments from some senators, who felt that the adopted exchange rate was not realistic and as such, unimplementable.
The Senate also retained the oil production volume of 2.2million barrels per day as proposed in the MTEF document but, however, raised the proposed oil benchmark of $42.50 in 2017 budget to $44.5 per barrel.
Enoh observed that the huge gap between the official exchange rate and what is obtainable in the parallel market (black market where the Dollar hovers around an average of N450 to N500) had created many loopholes in the nation’s economic system.
However, the lawmaker commended the recent flexibility of the Central Bank of Nigeria (CBN’s) policy direction, which gave room for the migration from fixed exchange rate regime and flexible exchange rate regime.
The committee observed in its report that there was a slight improvement in the global demand for crude oil, noting that a weaker US dollar and improving sentiment on broader financial markets had also given a boost to the crude oil price.
The committee justified its decision to raise the oil benchmark, saying that international oil industry watchers had forecast that oil prices were gradually heading towards $60 per barrel.
The committee said that it had to retain the 2.2 million barrel per day oil production volume, because its critical study of trends in the current administration proved that the projection was achievable if the Federal Government could make serious efforts to stem the tide of militancy in the Niger Delta.
It recalled that disruption of oil installations in the region resulted in fluctuations in oil production in 2016, pointing out that production dropped from 1.912 million barrel per day in January 2016 to 1.721 million barrel per day in June before later declining to 1.721 million per day in October.
The Senate, based on the committee report, also approved the Federal Government’s borrowing plan of N2.321 trillion, made up of N1.253 trillion as domestic borrowing and N1.067 trillion external borrowing.
The apex chamber implored the Federal Government to be focused and ensure that the loans were used to finance critical projects that could boost productivity, which would also generate revenue to service the debt.
The upper chamber further approved government’s independent revenue projection of N807.57 billion as contained in the revised MTEF and FSP.
It also approved the projected N5.122 trillion nonoil revenue in 2017, tasking the revenue collection agencies to intensify their revenue collections drive to boost the non-oil components of the revenue.
Meanwhile, the retention of the exchange rate of N305 to $1 attracted opposition from some senators, who felt that it was unrealistic to make such projection even when the current rate is about N500 to $1. Senator Ben Bruce, in his contribution, expressed concern that recurrent and capital components of the budget followed the old trend in the nation’s budgeting, where the recurrent was always far above the capital, urging that the trend should be reversed in the interest of the economy.
He also criticised the joint committee for recommending the exchange rate of N305 to $1 when the market rate was far higher than that, warning that the discrepancy would not augur well for the implementation of the 2017 budget. Bruce also argued that the wide gap in the exchange rate would encourage businessmen to embark on round tripping because it would be more profitable to trade in dollar than invest in production. “You have pegged the exchange rate at N305 to the dollar.
Now this is fine; however, nobody in this room today can go to the bank and buy the dollar at N305 and so we have an exchange rate that is ridiculous.
“The black market is about N500, which is about N200 differential… In 1980, it was $1.97cents to the naira and the difference between official and black market was 10 kobo.
“When Shagari was overthrown on 31st December, 1983, the official exchange rate was N3 to the dollar and the black market was N4 to the dollar. So, it was a N1 differential.
Three years ago, it was a N10 to N15 differential between the black market and the official rate. “Today, it is N200 and so, it is better for businessmen to round trip than to manufacture.
The point I am making is that the exchange rate is wrong; N305 is unrealistic and that is the point I am making.” In his remark, the Deputy President of the Senate, Ike Ekweremadu, who presided over the session, also expressed worries that the exchange rate of N305 to $1 was far from the reality on ground.
His words: “Having listened to the comments, it appears to me that the only area that needs to be emphasised is the issue of the exchange rate.
We are worried with the huge gap between the parallel market and the official market. “And as has been said by the chairman of Appropriations, the CBN needs to do something about it because it is one thing that is breeding corruption.
We must find a way of bridging that gap and also stabilise the exchange rate so that investors can do their own forecast in terms of their investments.
We believe that something needs to be done in the area of the exchange rate.” Also, yesterday, the House of Representatives approved the 2017-2019 MTEF/FSP.
The approval followed the endorsement of the recommendations of House joint Committees on Finance, Appropriations, National Planning and Economic Development, Legislative Budget and Research and Aids and Loans and Debt Management presented by Hon. Ibrahim Babangida (APC, Katsina).
In the MTEF, the House approved the Federal Government’s proposal to borrow N2.321 trillion in 2017. The House, however, gave a condition that “in borrowing, government must remain focused and ensure it is used to fund critical projects that will increase productivity and also contribute to financing such debts.”