“Between the crude oil price and production we have already seen that once we don’t meet those targets, we are going to have a huge deficit problem.”
Adewale Sanyaolu
Worried by persistent drop in international crude oil prices, some Nigerian experts are becoming apprehensive that the implementation of the 2019 budget may be hugely challenged as government revenue may fall below key projections.
2019 Budget: Matters arising
This anxiety comes as Brent crude fell from $88 in October to $52 last Friday, the lowest in one year. President Muhammadu Buhari, had on December 19, presented the 2019 budget to the National Assembly indexing oil production of 2.3 million barrels per day, with oil benchmark price of $60 per barrel at an exchange rate of N305 to the dollar.
Other key economic assumption contained in the budget include a plan to reduce inflation to 9.98 percent; nominal consumption of N119.28 trillion; nominal Gross Domestic Product of N139.65 trillion and a GDP growth rate of 3.01 percent.
But reacting to some recent trends in the price of oil in the international and OPEC’s decision to cut Nigeria’s quota to 1.6 million barrels per day, some experts insisted that the key projections of $60 per barrel and 2.3 million barrels per day oil production appear unrealistic, especially in the wake of oil price crash to $52 as at Friday, the lowest in about one year.
First to raise the alarm was the Director General, Lagos Chamber of Commerce and Industry (LCCI) Mr. Muda Yusuf, who warned that, the declining global oil price will likely distort Federal Government’s economic projections for 2019 as well as impact adversely on its Medium Term Expenditure Framework (MTEF), if the trend is not reversed.
He posited that oil price trending in the region of slightly above $50 from its peak of $88 per barrel in the month of September and October 2018, shows that it is already below the 2019-2021 MTEF and the 2019 budget benchmark of $60 per barrel.
For his part, the Senate President, Dr Bukola Saraki, at the weekend, described the 2019 budget proposal of N8.83 trillion presented to the National assembly by Buhari as “hopeless”. and deceptive
Saraki wondered why the Executive arm of government would use a benchmark that is higher than current crude oil market price to index its projections for 2019 which is also an election year.
“I made a comment where I said it was a hopeless budget that will rarely bring Nigerians out of poverty, or achieve diversification of the economy and inclusive growth.
“If you followed the previous budgets under this administration, there was no budget under this administration that I have ever used any word as strong as that. Some of the budgets had given hope; some had tried to address growth. But this budget (2019 budget) particularly, I still stick to my words: it is not only hopeless; I think it is even deceptive. Is it that those that prepared the budget did not ask themselves these questions?
“Looking at the issue of the oil price, they had not completed the budgeting exercise, when the price of crude oil dropped to $50-something and they are now using the benchmark higher than the current crude oil price, what does that mean? If some people believe that the price might go up, then they better come back later with a supplementary budget.”
Saraki said it is disturbing to note that 70 percent of the budget is “already gone on recurrent, debt servicing and others.”
“It’s clear that any shortfall of revenue is going to be very impactful because already between the crude oil price and production we have already seen that once we don’t meet those targets, we are going to have a huge deficit problem,” he said.
The 2019 budget is even further threatened considering the latest stance of the Organisation of Petroleum Exporting Countries (OPEC) to compel Nigeria to cut its crude oil production to 1.68 million barrels per day (bpd) for the first half of 2019, as part of efforts by the cartel to stabilise and strengthen crude oil prices at the international oil market.
Beginning from January 2019, OPEC members will reduce production by 800,000 bpd, while non-OPEC producing countries will cut production by 400,000 bpd.
Also reacting to the raging argument, the Lead Director, Centre for Social Justice, Eze Onyekpere, said the $60 per barrel budget benchmark price was unrealistic.
“The $60 benchmark seems unrealistic considering the actual price of crude oil in the last couple of months. The postulation that ‘the considered view of most reputable analysts is that the downward trend of oil prices in recent months is not necessarily reflective of the outlook for 2019’ is overly optimistic and fails to be guided by the cautionary approach to plan on the conservative side and if the price is exceeded, to fall back on withdrawals from the Excess Crude Account.”
He said with an already depleted ECA, the country had no buffer to cushion any potential negative impact of revenue on the economy.
“The fact that ECA has been drawn down by $1.6bn in three weeks and the balance is now $631m shows that the country has no buffer to fall back upon,” he said. This was as the Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Mr Bismarck Rewane, said he did not see any bright side to the oil benchmark.
“We have never had an oil price benchmark that is higher than the spot price. We put the benchmark at $60 and today, oil price is down to $53. So, there is no headroom for savings, and in fact, there is a shortfall. I think there will be a supplementary budget if this (oil price drop) continues.”