The coordinating Minister of the economy Ngozi Okonjo Iweala confirmed that Nigeria plans to lower its assumed benchmark oil price for next year’s budget by $5 per barrel to $73 and use reserves to meet ongoing government spending, its finance minister said on Sunday.
This comes as no surprises as it is becoming increasingly possible that OPEC will not cut supplies and prices are likely to remain lower. According to Ngozi
“We think that for now, let us bring the benchmark price down to $73 then have a series of additional measures so that at each price it falls to, we would be able to kick in appropriate measures to keep this economy going,”
Ngozi Okonjo-Iweala said a six percent drop in oil revenues following a world crude price decline would require the government to cut non-essential spending and raise more revenue.
She said the revised medium-term expenditure plan, which is used in preparing the budget and must be approved by lawmakers, would keep the 2015 oil production projection at 2.27 million barrels per day, down from 2.38 million in 2014.
A lower assumed oil price means a tighter budget in 2015, though this is unexpected given it will be an election year, when politicians’ demands for funds tend to surge. President Goodluck Jonathan faces a presidential poll in February.
Brent crude, the benchmark against which Nigeria’s oil is measured, has fallen more than 30 percent since July. Nigeria depends on crude exports for more than 70 percent of government revenues.
Okonjo-Iweala projected 2015 expenditure of 4.66 trillion naira, down 2.92 percent from 2014, on revenues of 6.83 trillion naira, lower than the 7.287 trillion initially pencilled in.
However, the oil savings Excess Crude Account (ECA) is prone to being raided. Okonjo-Iweala said the government will tap about half of its $4.11 billion ECA, which has declined from $11.5 billion at the start of 2013, to meet current obligations.
She said Nigeria still had funds to pay salaries and keep debt obligations but with crude likely to fall the government would increase taxes on luxury items and ban non-essential government travel to cut expenditure.
Portions of this article was sourced from Reuters