‘Increase in VAT, minimum wage to spike inflation by Q1 2020’

Following the implementation of the N30,000 new minimum wage and the planned increase on Nigeria’s Value Added Tax (VAT), a research analyst has said the moves are capable of heightening inflationary pressure by the first quarter (Q1) of 2020.

Besides, the latest inflation report by the National Bureau of Statistics (NBS), showed that inflation rose by 0.22 per cent to 11.24, higher than 11.02 per cent recorded in August and 11.08 per cent in July 2019.

The spike, according to the Senior Research Analyst at the FXTM Limited, Lukman Otunuga, was characterised by the effects of border closure by the Federal Government, which placed a ban on the movement of goods in and out of the country.

Otunuga who spoke on the state of the economy in Lagos, said the 2020 budget as presented by President Muhammadu Buhari, has the ability to elevate Nigeria’s economy on paper but the revenue target was going to be exposed to external risks.

He said some of the revenue targets set by the executive arm of government are quite ambitious, running the risk of falling short and affecting budget implementation as seen in previous years.

According to him, the last time Nigeria consistently produced more than two million barrels of oil per day was 2013, hence setting the budget target at 2.18 million barrels per day was overly optimistic.

“When we look at the 2020 budget numbers, government expenditure is going to be N10.33 trillion, revenue target N8.155 trillion and that leaves a deficit of N2.18 trillion already. That alone will have to be financed by domestic and external debts and that’s the first weight on the economy.

“I feel the major talking point is oil, because if you look at the numbers, Nigeria is projecting $57 oil in 2020 and to pump 2.18million barrels a day. If you look at the oil market, you will know that it is very difficult for oil to push high due to demand-side dynamics.

“Concerns of slowing global growth, rise in production from U.S. shale and rise in crude oil inventories in the United States are genuine. You know when you put all of these together, $57 is quite ambitious for oil.

“We haven’t seen over two million barrels a day for almost six years, so how are we going to get that amount in 2020? So when you look at the figures, oil revenue accounts for N2.6 trillion, already if you are unable to meet the revenue, it is going to impact the implementation of the budget,” he said.

However, he urged the newly-constituted Economic Advisory Council (EAC) team to advise the President to focus on steps to mitigate Nigeria’s exposure to oil price shock.

He also said the EAC should specifically proffer suggestions tailored towards real diversification of the economy away from oil.