With crude oil mineral resources constituting more than 80 per cent of Nigeria’s revenue stream, the country’s liquidity condition has, expectedly, been jolted since the third quarter of last year when prices at the international market headed downwards until recently when it began a gradual recovery. The slide downwards has made it very difficult for the funding of the capital components of the 2014 fiscal plan as envisioned. Consequent upon this, the current fiscal plan still with the National Assembly presents a very tight and austere budget with some of ministries, departments and agencies (MDAs) getting zero allocations for capital expenditure, the scrapping of certain redundancies within the public service and introduction of alternative areas of revenue generation to make up for the more than 50 per cent drop in revenue from the petroleum sector.
While the Federal Government is believed to owe workers of the Ministry of Labour and Productivity salary arrears ranging from one to three months, 11 state governments excluding Edo could not pay December salary to workers. Three of the states – Benue, Plateau and Osun – have been reported to owe workers about five months’ salary arrears.
The economic outlook of the last quarter of 2014 for Nigeria exposed the grave weakness of the economy. The falling oil prices since the middle of the year led to panic economic measures by both the Central Bank of Nigeria and the Ministry of Finance towards the end of the year. The drastic measures taken by the Federal Government and CBN were the devaluation of the naira and the increased reserve ratio as well as retention of high monetary policy rate. These measures were expected to curb credit expansion and reduction in imports but they were misplaced measures. Over the past year, the Nigerian naira has lost more than 20 percent of its value, due to a number of factors including the global oil price fall and corruption.
As a result, Edo local government councils and local traders have seen importation costs soar, investors have fled the local scene in Nigeria, and capital market players have had their wealth shrunk, though some may argue that it is just paper value. Edo Local council sector is currently witnessing a shockwave, following federal government revenue decline caused by reduced oil revenue. This is coming at a time when an estimated $25billion (about N4.95 trillion) in foreign portfolio investments have been lost over the last few months, following dwindling revenue and rising political tension across the country, ahead of the March 28 and April 11 general elections.
Barely eight months after the rebasing of  Nigeria’s gross domestic product (GDP), which places the country as the largest economy in Africa and the 26th in the world, there are indications that currently, all is not well with the nation’s economy. The crash in the international price of crude oil, Nigeria’s cash cow, with its attendant dwindling revenue, has put the Edo State economy in dire strait.
To buffer the economy due to the prevailing crisis, the fiscal and monetary authorities opted for austerity measures and the devaluation of the Naira respectively. The Monetary Policy Committee of the Central Bank of Nigeria (CBN) decided to devalue the Naira to N200 to one America Dollar, from N155. The CBN also increased the Monetary Policy Rate (MPR), the rate at which the apex bank lends to deposit money banks, from 12 percent to 13 percent while the Cash Reserve Ratio (CRR) on private deposits was moved up from 15 to 20 percent. It, however, retained the public sector CRR at its current level of 75 percent.
For the fiscal authorities, they adopted a multi-pronged austerity measures to protect the economy from any adverse effect of the oil price slump. As part of the austerity measures, Federal government intends to review the granting of import duty exemptions and impose taxation on luxury goods consumption, owners of private jets and yachts as well as those who patronise champagne and similar items. The plan is to make the wealthy members of the society contribute more to easing the pain that will result from the current economic challenges.
But the big question is: Would these measures mitigate the hardship that would be inflicted on Edo people and indeed Nigerians by the inflation that has be triggered by the devaluation of the Naira?  What is the way out of the present precarious economic circumstance?
Amid dwindling federal oil revenue, Edo local councils have suffered declining income, with fears that Federal Government may reduce its workforce in the next couple of months. About ten Edo councils are currently having liquidity problem, worsened by the oil sector crisis. The depletion of the nation’s foreign reserves and excess crude accounts, is yet to settle. The 2007 CBN Act gives CBN the sole power to manage Nigeria’s foreign reserve accounts, which it then uses in defence of the naira and in meeting Nigeria’s international trade obligations.
Edo local government councils should blame Federal Government and CBN because it receives the inflow of dollars, mostly from the country’s oil proceeds, it monetises it by exchanging the dollars into naira based on the prevailing exchange rate. The naira is then shared at the Federation Accounts Allocation Committee (FAAC) meetings by the three tiers of government. In the month of February, 2015 some local government councils in Edo State got as low as 6 million naira February allocation from the Federation Account. Federal revenue allocation to local government councils in Edo State in January and February 2015 has crumbled.
From the public sector to the real sector of the economy, the stench of economy decline is being felt by all stakeholders, hence, the call on government to further tighten the loose ends to ensure it does not get worse than it is now before the end of the current administration.
With most state governments excluding Edo State currently unable to pay workers’ salaries due to declining statutory allocations from the Federation Account, while Naira’s declining exchange value and other financial aggregates are forcing banks to recall facilities given to the real sector, stakeholders are becoming rather apprehensive that the impressive economic gains are speedily being eroded.
Inwalomhe also learnt that in the face of the political uncertainties surrounding the impending general elections, an estimated $25billion (about N4.95trillion) investments held by foreign portfolio investors may have left the country over the last few months. Sources revealed that the foreign investors decided to withdraw their money to watch political development, unsure of what would happen over the general elections.
Since 1999, these developments are expected, particularly, as successive PDP led Federal Government failed to prepare the country for some of the current emergencies, but left it to continue running on one engine, which is crude oil.
Edo State is facing high exchange rate resulted in the high cost of both petrol and diesel. The unfortunate situation in which we find ourselves is that as the price of crude oil and the international price of diesel were dropping, Federal Government devalued the Naira. For example, for Premium Motor Spirit (petrol), the exchange rate for bringing products before the devaluation was N171.36 per dollar. At that rate, the landing cost of PMS was N90.67 per litre. There was a time the exchange rate rose to N188, that is N188 was the interbank rate, while the CBN gave us N171.36. But when it went to N188, the landing cost of PMS rose from N90.67 to N98.36. As at today when the exchange rate has gone to N199 (there is no window again), the landing cost rose to N103.45. So, you see that the main factor here is the exchange rate.”
Inwalomhe Donald, Researcher, Benin City, Nigeria. [email protected]