The Federal Government on Wednesday said it would revise the benchmark if oil price remains at $57 per barrel the rest of the year occasioned by coroner virus outbreak.
Consequently the FG through the budget office is planning a media budget review in June.
Ben Akabueze, director general of budget, budget office of the federation disclosed this on Wednesday at the ongoing National Assembly/ budget office of the federation of Nigeria retreat/Workshop on budget process in Lagos.
“If we cannot find any alternative revenue sources to make up the short fall, we will then also have to revise down the expenditure projections “, Akabueze said.
“The current crude oil price of $53 a barrel is below the budget benchmark. So what we are doing is studying the situation. We are committed to doing a midterm review,” Zainab Ahmed, Nigeria’s Minister of Finance told reporters in Abuja, the nation’s capital.
Nigerian President Muhammadu Buhari signed the country’s 10.6 trillion ($29 billion) spending plan into law this year based on an crude price projection of $57 a barrel. Brent crude prices are down about 22% this year.
Africa’s largest oil producer relies on earnings from the black commodity for about 50% to 60% of its income and more than 90% of its export revenues.
The International Monetary Fund slashed the West African nation’s economic growth projection to 2% from 2.5% because of a decline in oil prices.
“We are not taking any measures now until we have a reasonable period within which we make a review and then we may need to do an adjustment to the budget through working together with the National Assembly,” she said.
Nigeria’s budget estimate appears threatened as oil price drops $5 below the 2020 benchmark on global fears over the impact of the Coronavirus epidemic.
Brent crude which is the international benchmark for crude oil, traded at $51.95 per barrel. This figure is $5 lower than Nigeria’s $57 crude oil price benchmark in the 2020 budget.
The United States West Texas Intermediate, WTI, traded at $47.31 per barrel, down 2.91percent.
According to the International Energy Agency (IEA), global oil demand will witness its first contraction in a decade because the Coronavirus outbreak has resulted in a partial shutdown of the Chinese economy. For Nigeria, this does not tell a good story as the country depends on crude oil for an estimated 90 percent of export earnings and more than 50 percent of government revenue.
The outbreak has also affected businesses and governments across the world as the supply of some raw materials have been delayed and conferences cancelled.
Commenting on the impact of reduced oil prices on Nigeria’s economy and the risk of a recession, Lukman Otunuga, FXTM research analyst, said recession will continue to hang over the Nigerian economy for as long as crude oil remains the primary source of revenue.
“Falling oil presents negative consequences for the economy, especially when considering how roughly 90 percent of export earnings and over 50 percent of government revenues are from crude exports,” he said.
“What is even more alarming is Nigeria’s 2020 budget which has set the benchmark for oil at $57. With Brent and Crude both depreciating over 15 percent since the start of 2020, it raises tough questions whether Nigeria will meet its oil revenue goal of N2.64 trillion.
The woes do not end here. Foreign exchange reserves are poised to decline on lower oil which not only complicates the Central Bank of Nigeria’s (CBN) efforts to defend the Naira but raises the risk of inflation running rampant.
“The toxic combination of lower government revenues, rising consumer prices and weakening local currency is more than enough to threaten Nigeria’s fragile economic recovery.”