HomeAnalysisMany states will struggle with salary payments – NESG

Many states will struggle with salary payments – NESG

Many states in the country will find it difficult to pay salaries of workers this year as the Federal Government’s revenue projections will be unmet, the Nigerian Economic Summit Group has said.

The NESG, a private sector-led think-tank, said the fiscal effect of the fall in crude oil price would be enormous with severe sectoral implications for the country.

“Nigeria, being a major dependent player in the oil market, faces a dual challenge of dwindling windfall from oil and economic constriction as global lockdown continues on the back of COVID-19,” it said in a new report, titled ‘Sectoral Impact Assessment and Optimal Policy Response’.

The group noted that the 2020 budget of the Federal Government was based on an oil price of $57 per barrel, which was later revised to $25 per barrel.

It said falling crude prices, in addition to weak export demand, would significantly add pressure on federal and state governments’ finances.

The NESG said, “This means that the revenue projections in the revised 2020 budget will be unmet, thereby constraining government’s ability to meet its obligation such as payment of salaries and financing critical social and infrastructure projects in the year.

“Many states in Nigeria rely solely on allocations from the Federal Account Allocations Committee, which are predominantly oil-dependent. Falling oil price means that many states will have difficulty in paying salaries of workers.”

The group said this would have negative implications on aggregate demand and the performance of key sectors such as construction, cement and manufacturing.

It said limited economic activities arising from lockdown of some states and restriction of movement would result in poor performance of non-oil revenue.

The NESG noted that the shutdown of production facilities and lockdown of several states would have negative implications on investment, aggregate demand and overall economic growth.

“While the lockdown and restrictions were relaxed in some states on May 4, 2020, economic activities during the four-week lockdown were severely constrained, and this is expected to reflect on the GDP growth figures for the first to second quarters of 2020,” it said.

The group noted that the International Monetary Fund had estimated that the Nigerian economy would contract by 3.4 per cent in 2020.

It said, “Within the last three years, the major economic sectors in Nigeria have struggled to exert significant expansion in output.

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