The federal government says it is considering adjusting further, the benchmark crude oil price in the 2020 budget down to $20 per barrel.
In the initially approved appropriation assented into law by President Muhammadu Buhari last December, crude oil benchmark price was put at $57 per barrel.
Following the outbreak of the coronavirus pandemic, which impacted the international crude oil market, resulting in the drastic slide in oil prices below $30 per barrel, the government cut the budget estimates by 30 per cent and reviewed the budget fundamentals.
Apart from reducing the crude oil benchmark price to $30 per barrel, the government also lowered the daily oil production capacity from 2.2 million barrels to 1.7 million barrels.
Coronavirus bites harder
However, with the impact of the coronavirus biting harder, coupled with the fact that the recent intervention by the Organisation of Petroleum Exporting Countries (OPEC) and its allies appears to have failed to stabilise the oil market and strengthen crude oil price, the government says it is considering another price adjustment.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed the plan on Tuesday in her contribution during the “Citizens Dialogue Session on Government’s Fiscal Policy Decisions in Response to the Fall in Oil Prices and the COVID-19 Pandemic.”
The online session was organised by the Federal Ministry of Finance and National Planning in collaboration with the UK Department for International Development (DFID) and Partnership to Engage, Reform and Learn (PERL).
“We are in the process of another adjustment that will see us bringing down the revenue indicator (crude oil benchmark) to $20 per barrel,” Mrs Ahmed said at the conference in reference to the steps the government is taking against the impact of declining oil prices on the country.
The minister said ongoing projects in the country’s oil and gas industry may also suffer some delays as the government anticipates that its joint venture partners in those projects would hope to “deliver on them much later than originally planned” due to upstream budget cuts.
Economy to contract by 3.4%
Also, with the World Bank and the International Monetary Fund anticipating a recession in the global economy this year in the aftermath of the impact of coronavirus pandemic, Mrs Ahmed said the Nigerian government expects the country’s economy to contract by about 3.4 per cent.
Indications are that whatever gains may have been recorded in an effort to ensure the economy recovered from the impact of the 2016 recession has been wiped out by the crisis, pushing the economy deeper into the negative zone than previously.
With global crude oil prices dropping further despite the commencement of the OPEC output cut deal on May 1 in an attempt to salvage the market, Mrs Ahmed said Nigeria realised far lower revenue than normal in March.
On the country’s growing debt profile, Mrs Ahmed said the government was currently discussing with some multilateral lending organisations on the need to defer Nigeria’s debt service obligations to “2021 and beyond”.
“We are not asking for debt forgiveness, but just rescheduling of our obligations,” the minister clarified, although she did not give further details.
She said at the moment, about 58 to 60 per cent of the country’s earnings go into servicing debts, a development that compelled the recent decision by the government to cancel its plan to borrow N850 billion externally and refocus it to domestic sources.
Rather, the government said it was refocusing its attention to tapping domestic sources for loans to fund the 2020 budget, an arrangement financial analysts say may cause the problem of crowding out local businesses from local lending space.
Meanwhile, in his contribution, the Director General, Budget Office, Ben Akabueze, said earnings from crude oil were expected to drop significantly by more than 80 per cent with the crisis.
Mr Akabueze said the government’s decision to drastically revise its projections in the 2020 estimates was in line with the expectation that the economy would contract by a minimum 3.4 per cent this year, compared with its previous growth projection by 2.9 per cent .
Consequently, he said the government is considering expediting the process to organise the oil bid licensing round for the country’s marginal oil fields as well as the process to renew the expired oil mining licences this year to explore fresh revenue earning options.
Mr Akabueze said the cost of servicing the debts by the Nigerian government is expected to spike by about N200 billion during the year.