• Thursday, March 28, 2024
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Iran’s 2019 budget points way for Nigeria on reducing oil dependence

Bijan Zangeneh

Faced with US sanctions which has cut nearly 1million barrels per day (bpd) from its daily production of over 2.7million bpd, Iran has drawn up a micro policy hinged on cutting down dependency on oil revenues, providing a lesson on diversification for Nigeria where oil is still responsible for up to 70 percent of income.

Bijan Zangeneh, Iran’s minister of Petroleum told reporters the country was prepared to weather the storm of US sanctions through a strong fiscal policy.

“Although Iran’s budget is the least tied to oil among OPEC Member States, we are in good condition compared to neighbouring countries,” Zangeneh, adding that the country’s macro policy is to decrease budget dependency on oil revenues.

Zangeneh says the government has envisaged the price of each barrel of oil at $54 for the next year’s national budget bill. The budget, will take effect in March 2019 and includes $112 billion in spending.

Because budget benchmarks are set quite low, the country can benefit from surpluses when oil prices trend north. In 2018, Iran had a benchmark of $55 but oil prices rose to $70 within the period.

This compares poorly with Nigeria where successive administrations have indicated a desire to diversify the economy from oil but have been unwilling to carry out reforms that can deliver the result.

Nigeria’s 2019 budget is premised on the production of N2.3million barrels per day (bpd) and that oil prices will average $60 per barrel, but before the budget is even considered, oil prices have fallen below $54 rendering the assumptions obsolete.

Rafiq Raji, chief economist at Macroafricaintel said the projections are quite ambitious. “Crude oil production has been less than 2million bpd thus far this year; latest about 1.7mbpd think.”
Raji adds “And even as OPEC and Russia are committed to production cuts, $60 is likely closer to the upper limit of the range of potential price increases.”

Crude oil prices averaged $49.49 per barrel in 2015, $40.68 in 2016, $52.51 in 2017 and so far this year, has sold at an average price of $71.2 according to figures published by the Organisation of Petroleum Exporting Countries (OPEC). Oil prices currently are around $53, with analysts projecting it will remain low for the medium to long-term.

Iran, like Nigeria offers subsidies on some commodities. According to Iran’s Budget and Planning Organization, the government is obligated to spend up to $90 billion per year through state-owned enterprises and companies on subsidies for basic goods, diesel, fuel, water, education, electricity and health services.

Yet the country has managed to deliver basic services despite projections that it will export 1.5 million barrels of oil per day (bpd) next year.

“The government is doing its best to curb its reliance on oil revenues. This is a long-term plan,” Zangeneh said, underscoring the demand of academia and most economic analysts that dependence on oil export earnings is a luxury the nation can no more afford.

Drawing an analogy between Iran and its neighboring states, the minister said, “Now Iran is a country in the region that is the least dependent on oil.”

 

ISAAC ANYAOGU