…As Oil price crash forces review of 2019 budget benchmark***

The Federal Government’s collected revenue fell by 38.4 per cent in October, and it recorded a deficit of N66.51bn within same period.

The Central Bank of Nigeria revealed this in its ‘Economic Report October 2018’ which was released on Monday.

In the report, the apex regulator stated, “Federally-collected revenue (gross) was estimated at N682.06bn in October 2018. This was below the monthly budget estimate and receipts in the preceding month by 38.4 per cent and 18.0 per cent, respectively.

“Oil and non-oil receipts (gross), at N422.13bn and N259.93bn in the review period, constituted 61.9 per cent and 38.1 per cent of total revenue, respectively.

“Federal Government retained revenue and estimated expenditure for October 2018 were N280.96bn and N347.48bn, respectively, resulting in an estimated deficit of N66.51bn.”

According to the report, domestic crude oil production was estimated at 1.88 mbd or 58.3 million barrels (mb) in October 2018.

Crude oil export was estimated at 1.39 mbd or 43.1 mb.

The average spot price of Nigeria’s reference crude oil, the Bonny Light (37° API), rose by 2.9 per cent to US$82.82 per barrel in October 2018.

“The end-period headline inflation, on year-on-year and twelve-month moving average bases, were 11.26 per cent and 12.80 per cent, respectively, in October 2018, compared with 11.28 per cent and 13.16 per cent, respectively, in September 2018,” it added.

According to the report, the average exchange rate of the naira at the inter-bank, the BDC segment and the “investors” and “exporters” window were N306.47/$, N360.38/$ and N364.16/$, respectively, in October 2018. The gross external reserves was $40.61bn at end-October 2018, compared with $42.61bn at end-September 2018.

In the meantime, against the backdrop of a long and steady decline in the international oil price, the Federal Government may have started reviewing developments in the global oil market with the intention of adopting a new oil price benchmark for its 2019 budget. This came as the decline appeared to have bottomed out, yesterday.

The N8.6 trillion budget was based on $60 per barrel (p/b) benchmark at a time international oil price was around $75p/b.

Though the price later escalated to about $86p/b, it began a downward trend about seven weeks ago closing at a year low of $59p/b last weekend. It, however, increased marginally to $61 as at yesterday, which is still a threat to the 2019 budget, especially as a gap of at least $10 is required between the budget benchmark and prevailing oil price.

Consequently, in an email to Vanguard on Sunday, Director-General of the Budget Office, Mr. Ben Akabueze, stated: “$60 oil price benchmark for 2019 was based on our review of projections from multiple sources by knowledgeable organisations on the subject of oil pricing. It was deemed quite conservative four months ago when we settled for $60. “We are willing to review the price projection downwards if it becomes clear that it is no longer sustainable.

An alternative benchmark will be determined, following same process explained above.” But Vanguard oil price monitor indicated a significant positive shift in the oil price trend as the commodity traded above $60/pb, yesterday.

However, explaining further on challenges of Nigeria’s oil economy, Akabueze said: “Current oil production in Nigeria is about 2.1 million barrel per day, mbpd, still below the budget projection of 2.3 mbpd. ‘’OPEC production numbers do not include condensates whereas the number stated in the budget and NNPC’s reports include condensates. Nigeria has capacity to produce up to 450,000 bpd equivalent of condensates.

“Continuing diversification of the economy, domestication of raw/intermediate materials sourcing for manufacturing, formalization of the non-oil sector, as well as stronger focus on tax administration/legislation will ultimately break the dependence on oil for government revenues.”

LCCI reacts

Commenting on the development, Director General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, said: “Data from the Organisation of Petroleum Exporting Countries, OPEC, shows that oil prices are trending down at $59.96p/b on November 29 from $88p/b one month ago.

“This is below 2019-2021 Medium-Term Expenditure Framework (MTEF) benchmark of $60p/b. The declining global oil price poses a major risk to Federal Government’s economic projections for 2019 fiscal year as well as impact adversely on its MTEF, if the trend continues.

“Analysts have described the slump in oil prices as the equivalent of a tax hike and tax cut in oil exporting and importing economics respectively.

According to estimates by Capital Economics analysts, every $10-per-barrel fall in oil prices boosts incomes by about 0.5 to 0.7% of gross domestic product in major emerging market oil importers. “The same discount will cause a 3-5% decline of GDP in most of the Gulf economies, and a slowdown of 1.5-2% of GDP in Russia and Nigeria on an annualized basis. This is not good news for Nigerian economy which remains fragile with GDP growth of less than 2%.”

The Citizen with additional report from Vanguard