Faced with the reality of several years of lip service to economic diversification, President Muhammadu Buhari on Monday summoned his top economic managers and inaugurated a committee to assess risks to the economy in a seemingly knee-jerk reaction to a looming crisis as oil price slides.
Despite decades of mouthing the diversification slogan, Nigeria, Africa’s biggest oil producer, was again caught unawares as price of crude oil in the global market plunged, occasioned by the outbreak of the coronavirus and the Saudi Arabia/Russia tussle which could see price drop to a low of $20 per barrel.
The crash in the global prices of crude oil, Nigeria’s main source of budget funding and biggest source of export earnings, from $53 per barrel last week to about $35 per barrel on Monday, is bound to have a telling negative impact on the country’s income and spending plan this year.
BusinessDay gathered that the reality of the situation may have compelled President Buhari to summon Zainab Ahmed, minister of finance, budget and national planning; Timipre Sylva, minister of state petroleum resources, and Clement Agba, minister of state, budget and national planning, to find a solution to the crisis that is set to affect the nation’s budget this year.
Economic experts, however, believe that these ad hoc solutions are half-baked and may not provide the necessary solutions to cushion the effect of the staggering dangers ahead.
Ikemesit Effiong, head of research at the SBM, sees the response as “belated”, faulting the absence of adequate buffers in the economy.
“That said also, we are seeing a huge budget gap now, and this will mean more borrowing aside the recently approved $22.7bn approved by the Senate,” said Effiong.
He noted that all bonds to be floated by the government, which are expected to be benchmarked against oil sales, will be affected by the dwindling oil prices and the country’s debt-to-GDP ratio would increase.
Economic experts say the regular attempts by the Central Bank of Nigeria (CBN) to defend the naira would likely crumble on the back of the current situation.
Inflation, they say, may also spike, following the new VAT rate, while life will be more difficult in the next few months which will again force consumption to fall.
On its part, the government needs to increase spending on infrastructure, reduce spending on consumables, reduce the budget deficit put at N4.3trn in the 2020 budget, experts say.
Faced with revenue crunch and increasing debt levels, economists say Nigeria can totally remove the fuel subsidy which was put at N1.1trn last year so that funds can be freed up for infrastructure such as the Mambila power project.
For the new committee, the stakes are high as the memories of the 2016 recession remains fresh.
“Our mandate is to make a very quick assessment of the impact of this coronavirus on the economy especially as it affects the crude oil price,” said Finance Minister Ahmed. “We will be writing a report and brief Mr. President tomorrow (Tuesday) or Wednesday morning. After that, we will also have more substantial information for the press.”
Other members of the committee include Timipre Silva, minister of state for petroleum resources; Godwin Emefiele, CBN governor, and Mele Kyari, NNPC GMD.
Ahmed said the committee would have to lower the budget crude oil benchmark price of $57 per barrel.
“Where it will be lowered is the subject of this committee. What the impact will be on that is that there will reduce revenue to the budget at it will cut the size of the budget. The quantum of the cut is what we are supposed to assess as a committee,” she said.
Sylva, on his part, said Nigeria was not in a position to negotiate with Russia.
On Monday, Nigeria Centre for Disease Control (NCDC) announced the country’s second coronavirus case.
TONY AILEMEN, Abuja