The Federal Government is considering a further reduction in the budget benchmark price of oil from the current $73 per barrel to a much lower price.
The move followed the sharp decline in the price of crude oil in the international market, which saw prices crashing to a five year low of $70 per barrel on Monday.
A top official in the Budget Office of the Federation told our correspondent that the Economic Management Team would be meeting to discuss the new development with a view to further reducing the budget benchmark.
The source, who pleaded not to be named as he was not officially permitted to speak on the matter, said since oil price had fallen below the revised $73 per barrel price which was sent to the National Assembly by President Goodluck Jonathan, anchoring the budget on such framework was not sustainable.
The source said it would be suicidal for the government to leave the oil price benchmark at $73 per barrel considering the fact that the price of oil my further decline.
The source said that within the last few days, there had been discussions by members of the economic management team, adding that the thinking of the team was that the benchmark be further reduced.
The source could not, however, give the new budget price being planned.
He said, “The recent developments in the oil market have not been favourable to the Nigerian economy as oil constitutes a huge chunk of our revenue.
“As you must have known that oil price has further dropped even far below the $73 per barrel price sent to the National Assembly. In view of this, it would be extremely difficult to implement the 2015 budget if it is eventually passed based on the current $73 per barrel price. So, based on this, it has become imperative for it to be reviewed downwards and the economic management team has started meeting on this.”
When contacted, the Special Adviser on Communications to the Finance minister, Mr. Paul Nwabuikwu, said the government was ready with various intervention measures to cushion the impact of oil price drop.
He could, however, not confirm whether there would be a reduction in the budget benchmark price.
He said, “The minister had said we were ready with various measures to address the oil shortfall.
“It’s going to be tough but we gave considered various scenarios that would help us to come up with policies whenever the need arises.”
The Minister of Finance, Dr. Ngozi Okonjo-Iweala, had said last week at the Capital Market Committee retreat said the team would not allow the economy to collapse with the decline in oil prices.
As a strategy, she said the government was adopting a three scenario-based approach to address the decline of oil prices on the economy.
She noted that as each scenario played out, additional measures would be unveiled to cushion the impact.
She said, “As a central part of our strategy, we have revised our oil price expectations over the short to medium term.
“But let me clearly state that we are not taking a point-estimate position as regards the future price of oil. We fully recognise that oil prices may fall lower or even rebound. Prices could fall to $70 a barrel, $65 or even $60. Prices could also rebound to $75 – $85 a barrel.
“What we did was to work within a range of $60 – $85 thought possible by analysts, put a package of measures around an estimate at the midpoint of that range, that is, $73, and then build additional measures for scenarios at $70, $65 and $60 a barrel.
“The best way to manage uncertainty is to take a scenario-based approach to be ready for alternatives that may occur.”
In all of these, she said that the interest of ordinary Nigerians would be adequately protected by the government, noting that efforts had been put in place to strengthen tax administration to get more revenue from the rich in the society.
The Governor of Central Bank of Nigeria, Mr. Godwin Emefiele, last week said that the oil price benchmark of $73/barrel proposed in the 2015 Federal Government budget was “overly optimistic.”
Culled from: http://www.punchng.com/business/business-economy/fg-to-slash-2015-budget-benchmark/