The Federal Government must take urgent measures to guard the economy against sliding into another recession in the face of crashing oil prices at the international market, the Nigeria Employers’ Consultative Association (NECA) has said.
Although global oil prices saw a slight rebound on Tuesday, with Brent crude rising by $3.12, or 9.1 percent to $37.48 a barrel, up from $34.36 a barrel on Monday, Nigeria nonetheless remains largely traumatised, as the price is still below the 2020 budget benchmark of $57per barrel.
Timothy Olawale, the Director-General of NECA, said the scale of the fall elicited memories of 2014 and 2015 oil price downturn that largely pushed the country into recession in 2016 and everything must be done to safeguard the economy.
“This price fluctuation is already threatening the national budget benchmark and overall revenue of the government for 2020, with consequential negative implication for the proposed capital projects and other critical expense heads,” said Olawale.
According to him, the tumbling of the oil prices raise concern about the implication on nation’s foreign reserve and the naira, as oil revenue represents Nigeria’s major source of foreign currency earning.
“The implication is that a lower oil price will affect the foreign exchange supply to the country and stability of the naira. That also has implications for the ability of the Central Bank of Nigeria (CBN) to meet foreign exchange demands in the long term,” said Olawale
Charging the government to provide leadership and direction in diversifying the economy, the DG noted that it was high time Nigeria insulated its economy from the perennial global shock in oil prices. According to him, the country cannot continue to hinge its destiny on the price of a commodity in which it has no control on the pricing.
“It is time to deliberately create a roadmap for a rapid diversify of the economy away from oil. We need actions; the government needs to create avenues for more economic activities to happen like diversifying the tax revenue of the government beyond oil.
You can’t expect to generate more non-oil tax without having an increase in economic activity, championed by the private sector,” Olawale submitted.
He further noted that the significant plunge in oil prices would always adversely affect the nation’s tax revenue and the external reserves used to stabilise the foreign exchange. And the immediate concerns would be potential impact on forex, which might make devaluation more likely.
He postulated that if the scarcity of foreign exchange was mismanaged, it would adversely affect key sectors such as manufacturing and trading that are more dependent on imports.
This can then have a rippling effect on other sectors similar to what happened in the 2015 – 2016 period,” he warned.
He, therefore, called on the Federal Government to show fiscal discipline by cutting down costs and executing projects that will impact the economy positively as a result of the plunge in the oil prices.
The shortfall in oil prices should not be a license to further mortgage the future of the nation with borrowing because the budget is already struggling under the weight of debt service.
He also advised the government to resist the temptation to further tax the “already over-taxed private sector” as this would only further incapacitate the businesses and worsen the already precarious unemployment situation in the country.
“Rather, deliberate efforts should be made by the government to seek ways to finance some of its infrastructure projects through private sector investments through Public Private Partnerships (PPP).
JOSHUA BASSEY
