Barely hours after the world’s top oil exporter, Saudi Arabia, began a global oil fight, Brent crude oil crashed by about 30 per cent, sending Nigeria into a revenue crisis.
According to details on oil data site, Brent crude sold at $35.42 Monday morning.
In December 2019, President Muhammadu Buhari signed a N10.50 trillion 2020 national budget. In the budget, Nigeria pegged oil production at 2.18 million barrels per day, with a price benchmark of $57 per barrel.
Now confronted with having only about half of what it projected in revenue for 2020, the government may not be able to finance the budget.
The outbreak of the coronavirus epidemic has seriously impacted on the world economy, causing disruption in stock markets and supply chains around the world.
In the case of Nigeria that makes most of its foreign earnings from oil and produced its oil at about $30 per barrel, the price crash portends a recession for the economy, according to experts.
The Minister of Finance, Zainab Ahmed, last week announced that a mid-term review of the 2020 budget will be carried to reflect the realities on the ground.
It is yet unclear if the cut will apply to the earmarked allocations to the health, education, agricultural and power sectors, which have a controversy of insufficient budget funding.
Coronavirus; an economic vampire
The senior economist, SPM Professionals, Paul Alaje, said coronavirus is not just after people’s life, it is an “economic vampire” that is sucking vitality out of countries.
He said if the coronavirus spread is not contained, it will lead the world into another economic quagmire which will be evident in recession or depression as the case may be.
He said Nigeria on a daily basis is having a shortfall both on price line and revenue line.
He said the country is faced with an option of either to slash the budget or borrow more.
“Slashing the budget most of the time, the cost of our over-bloated recurrent expenditure, which is close to 80 per cent, the government may have to slash the capital component of the budget.
“We have over two trillion that we will spend on capital expenditure. If we borrow more, then the component of the budget that will be responsible for borrowing is really huge and very high,“ he said.
Mr Alaje said policymakers and agencies of government have to review the budget to reflect the reality, “because we have not seen a downward trend in the spread of coronavirus.”
Talking about the consumption of crude oil and other commodities, he said countries in Europe and Asia, especially China and Japan, are badly affected by the virus as economic activities are not going on in the countries
Mr Alaje said since the economy has remained fragile since the recovery from the previous recession, slashing the budget will result in another recession.
“Looking at the quarter on quarter growth, all first quarter from 2015 till date, Nigeria always have negative quarter growth, not a slight increase year on year growth
“With the reducing crude oil prices, if we don’t have negative, we will be around 0.5 to about 0.1 GDP growth which is really low.”
Also, reacting, a financial analyst, Tope Fasua, said Nigeria is not well-positioned to manage a $30 per barrel kind of scenario.
He said what that means is that the country will be unable to produce crude oil and sell at a profit because most of the country’s crude oil is produced at about $30 cost. Apart from that, a lot of Nigeria’s crude cannot be sold,” he said.
According to him, it could get worse and may signal the end of crude oil and the upsurge of another kind of energy sources that are sustainable
“One of the things that may happen is a scenario where at some point, the government will not be able to pay salaries at the federal level, not to talk of the state level
“See Nigeria is already trying to borrow $22.7billion, some of the creditors may even develop cold feet or increase the rate and tell them, ‘Sorry, the cash flow which you depend on (crude oil) has crashed,’” he said.
Mr Fasua said the government may try to increase taxes and be very hard in collecting them, but warned that people, in turn, would fight back.
“I hope we won’t get to a point where to drive a car on the road will be unsafe as people will just come and take what they need to take from you and the middle class will suffer most because the upper-class people have armed themselves with our policemen, leaving the rest to sort themselves out,” he said.