Nigeria has slashed the oil price assumed in its 2015 budget by 11 percent to $65 a barrel from$73, in light of lower world oil prices, a Finance Ministry spokesperson said on Thursday.
It is the second time in a month the benchmark has been cut, after initially being lowered from $78 a barrel. Other oil exporting countries including Russia and Mexico have said they expect oil prices to be lower next year than assumed in their budgets, which may be revised.
The spokesperson gave no further details but said Finance Minister Ngozi Okonjo-Iweala was working on a statement. Nigeria, Africa’s most populous nation, depends on oil for around 75-80% of government revenues and its finances have been hammered by a steep drop in oil prices since June.
Its oil money is distributed between three tiers of government, local, state and federal, with the federal portion being used to fund finance ministry budgets, along with tax receipts. The budget assumes a benchmark price that is usually conservative, so money over and above that is deposited into an oil savings account to cushion against shocks.
The minister has often wrestled with parliament to keep the benchmark low and accumulate more savings, but the Excess Crude Account (ECA) is all too easily raided for spending. It has declined by billions of dollars to around $4 billion over the past two years even while oil prices were at record highs.
The allure of Africa’s biggest economy to foreign investors has been growing, especially for buyers of its attractively priced debt, but they worry about its tendency to squander its oil windfall in bloated government spending and patronage. Nigeria’s central bank devalued the Naira by 8% and raised interest rates sharply last week, as it sought to stem losses to its foreign reserves from defending the currency against weaker oil prices.
The Naira has consistently tested the lower end of the new band. Okonjo-Iweala said Nigeria still has 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.