As the price of crude oil decline in the international market and 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 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.
“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 also 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 has 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 has 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 has consistently advocated prudence and a low budget benchmark to encourage more savings.
She stressed that even though the drop in oil prices is a serious challenge, it is 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 has 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), which has been working with Mckinsey to increase receipts will 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 will be severely curtailed. But critical infrastructure projects will not be affected because they are key to economic growth and development as well as job creation.
The implementation of the new mortgage system including the current processing of over 66,000 applicants for mortgages will go on as planned so that the country reaps the strong benefits that will come from unleashing the housing revolution which is attracting serious interest from local and international investors.
Also unaffected are public sector wages as well as key initiatives in education, health and other areas critical to the country’s human development.
A key initiative on the revenue side is a surcharge on luxury items details of which are being worked out.
On calls from some quarters that the Federal Government should respond to the decline in revenues arising from the drop in oil prices by printing more Naira to fund projects, the Coordinating Minister said that such poorly thought out populist recommendations would be disastrous for the country if implemented.
She said such prescriptions ignore the facts of history as well as the elementary principles of economics.
“Printing money without adequate revenue support will lead to serious consequences for the country. It will spur inflation as the experiences of Germany in the early part of the last century and more recently, Argentina and Zimbabwe demonstrate. This prescription will victimize the poor and middle class that it is supposedly protecting.”
She explained that the best way to protect the interest of the ordinary people is to control inflation as much as possible, expand the economic base, strengthen the sectors that drive growth, boost critical infrastructure and create more jobs. We have already started doing that, the results are already coming but we still have a lot of work to do.
To show how serious government is about job creation, President Goodluck Jonathan will tomorrow, November 17 launch the 4th edition of YouWin to support another 1,5000 entrepreneurs along with a private equity fund for entrepreneurs. That is an expression of government’s commitment and seriousness to job creation”.