Senate Finance Committee proposes 20% cut in 2015 budget oil price benchmark

The Senate Finance Committee has proposed cutting the oil price benchmark in the 2015 budget to $52 a barrel from its current $65, Reuters reported quoting a source at parliament.

The Ministry of Finance had previously said that the benchmark would not change. With an election coming up on March 28, President Goodluck Jonathan’s administration is under pressure not to slash spending, especially on salaries.

The source told Reuters the upper house had debated the change proposed by the committee on Wednesday but had not yet reached a conclusion.

“It’s going to have to be lowered,” the source said. “The Senate is likely to agree this is the only way to go.”

The oil-price slump has hammered Nigeria, whose currency has hit a series of record lows against the dollar in the last three months, breaking through 200 to the greenback this month, despite the central bank burning through billions of dollars of reserves to prop it up.

GDP growth, only 15 per cent of which is fed by oil, remains robust even though revised down from forecasts, showing 5.94 per cent in the fourth quarter of 2014.

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But Nigeria’s public finances have been hit by a sharp drop in world oil prices and irregular supply linked to pipeline vandalism. The government depends on oil for around 80 per cent of revenues.

The accountant general said that Nigeria’s gross government revenue fell 15 per cent to 416 billion naira ($2.07 billion) in January due to weaker oil prices.

One told Reuters that investors in Nigeria’s Eurobonds are particularly anxious that efforts support the local currency may be wasting reserves. The central bank insists it has the forex needed to support the naira.

“There was substantial loss of revenue due to a further drop in the prices of crude oil,” Jonah Otunla said, adding that a decrease in export volumes by one third between November and December 2014 had cost $159.88 million.”

It is unclear where the cuts will fall, with capital expenditure already slashed to 10 per cent of the budget and the government struggling to pay salaries of its bloated civil service.

Even though Nigeria’s capital spending rarely materialises as planned, shelving projects such as port upgrades and roads will worsen inefficiencies that have plagued Africa’s most populous nation and biggest economy for decades.

At the same time, spending on military equipment is rising because of the insurgency in the northeast.