As the price of crude oil declines in the international market with its attendants negative effect on government revenue, the Federal Government, on Sunday, announced a proposal to change the oil price benchmark in the 2015 national budget proposal to the National Assembly from the earlier $78 per barrel to $73.
The Federal Government, in a statement, said the decision to review downward the oil price benchmark was a multi-pronged strategic response to mitigate the adverse effects of the decline in global oil prices, protect growth, reassure investors and keep the economy on a stable course through the crisis which has seen a significant drop in oil revenues for Nigeria and other oil producing countries since June.
As a result, the Medium Term Expenditure Framework (MTEF) and the 2015 budget would also be reviewed.
The minister, who stated this in Abuja at a briefing, stated that stringent measures would be adopted to stabilise the economy, stressing that this would include cutting excesses in all civil, public services, strict management of all parastatals, as well as addressing overlapping responsibility of agencies and parastatals.
“The response is a mix of measures designed to boost non-oil revenues further, plug loopholes and waste and cut unnecessary expenditures in order to cope with the situation,” the statement added.
Apart from the benchmark, the government added that the Medium Term Expenditure Framework (MTEF) would also be revised in line with the current trend.
In the statement, the Coordinating Minister for the Economy and Minister of Finance, Dr Ngozi Okonjo-Iweala, declared that the Federal Ministry of Finance had been keeping a close eye on movements in global oil prices because of the critical importance of oil as the country’s most important source of revenue.
She explained that even though the government had been working hard on several scenarios and contingency plans in readiness for any eventuality, it was important to proceed in a measured manner based on a complete understanding of the challenges.
“Given the nature of the oil market, we needed to see the extent and trend of the oil price in order to take the right measures. Panic is not a strategy. It’s important that our strategies are based on facts and a clear understanding of both the strengths of the economy and the challenges posed by the drop in oil prices which is currently at $79 for our premium Bonny Light Crude.
“The drop in oil prices is a serious challenge which we must confront as a country. We must be prepared to make sacrifices where necessary. But we should also not forget that we retain some important advantages such as a broad economic base driven by the private sector and anchored on sound policies. Our strategy is to continue to strengthen the sectors that drive growth such as agriculture and housing while reducing waste with a renewed focus on prudence.”
She recalled that in the last three years, the executive, in its discussions on the budget with the National Assembly, had consistently advocated prudence and a low budget benchmark to encourage more savings.
She stressed that even though the drop in oil prices was a serious challenge, it was also an opportunity for the country to focus on greater diversification and refocus efforts towards the non-oil sectors in preparation for a future with less oil revenue.
She stated that the decline in oil prices had given additional impetus to the Federal Government’s focus on increasing non-oil revenues. In this regard, the collection target for the Federal Inland Revenue Service (FIRS) would be revised upwards for next year. The country has had good success in reaching the initial target set this year of N75 billion; so far, N65 billion of this has been collected. For 2015, the revised target is N160 billion above the 2014 base.
As part of the efforts to reduce expenditure, international travel within the public service would be severely curtailed. But critical infrastructure projects would not be affected because they were key to economic growth and development, as well as job creation, she added.
Meanwhile, the International Energy Agency (IEA) has said oil prices are likely to continue falling well into 2015.
The IEA, a consultant to 29 countries, said weak demand and the US shale gas boom meant crude’s recent fall below $80 a barrel was not over.
On Friday, Brent crude, one of the major price benchmarks, traded at $78.13 a barrel, near a four-year low.
“It is increasingly clear that we have begun a new chapter in the history of the oil markets,” the IEA said.
“Barring any new supply problems, downward price pressures could build further in the first half of 2015.”
The organisation, set up after the “oil shock” of the early 1970s to advise major oil importing countries, said pressure was building on the Organisation of Petroleum Exporting Countries (OPEC) oil producers’ group to restrict supply to bolster prices.
However, there have been reports that Saudi Arabia, OPEC’s key member, is not yet willing to turn off the taps. OPEC members are due to meet on November 27 to discuss the supply and demand issues.
Most OPEC members rely on oil revenues to support economic growth and spending.
An oil and gas expert who pleaded anonymity told Nigerian Tribune at the weekend that government’s revenue will begin to decline and there will be little for Federal Accounts Allocation Committee (FAAC) to share among the tiers of government.
Besides, it is likely that oil and gas explorers will become increasingly worried that falling prices will make exploration uneconomical and expensive.
Brent has fallen for eight weeks in a row, its longest losing streak since 1988, according to Reuters’ data.
The US energy department said last week that it expected low fuel prices to last into next year.
Earlier this week, the IEA’s Global Outlook, a report into the industry’s long-term challenges, warned that the US shape gas boom was masking serious risks to global energy security.
Tribune
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