Nigeria To Cut Budget In Face Of Oil Price Crash
There are indications that Nigeria may cut the size of its budget in the face of sharp declines in the price of crude oil.
Minister of Finance, Budget and Planning, Zainab Ahmed, speaking in Abuja on Monday after a meeting with President Muhammadu Buhari, said a committee including herself, the minister of state for petroleum, the head of state oil company NNPC and the central bank governor would determine the size of the budget cut in the coming days and revisit the benchmark crude oil price of $57 a barrel used to calculate the budget.
Benchmark Brent crude futures were down 19.5 per cent at $36.43 a barrel by 1449
President Muhammadu Buhari set up a committee to review the 2020 budget crude oil benchmark.
This is coming after the president held an emergency meeting over the falling crude oil price.
Godwin Emefiele, governor of the Central Bank of Nigeria and Zainab Ahmed, the minister of finance, budget and national planning; Timipre Sylva, the minister of state for petroleum; Mele Kyari, the group managing director of the Nigerian National Petroleum Corporation (NNPC), and Clement Agba, the minister of state for budget and national planning were at the meeting.
The committee is expected to submit its report on Wednesday at the federal executive council meeting.
The 2020 budget proposal was prepared with $53 as the crude oil budget benchmark.
The approved budget has $57 as the crude oil benchmark, whereas on Monday, crude oil was traded at $36.85 per barrel.
The oil prices tumbled after talks between the Organisation of Petroleum Exporting Countries (OPEC) and its allies collapsed.
Russia disagreed with a proposal for new production cuts that would last till December 2020 and Saudi Arabia has begun to offer discounts to its crude oil buyers.
The current OPEC production cuts would expire in March.
It will be recalled that when the price of oil slumped to $27 per barrel in February 2016, it plunged Nigeria into recession.
The current sharp drop in oil price will also threaten the implementation of the 2020 budget.
Nigeria’s 2020 budget of N10.594 trillion was predicated on the daily oil production rate at 2.18 million per barrel, and benchmark price to $57 per barrel.
Unless in the unlikely event of production jumping above 3million barrels per day to offset the price drop, the country will not be able to fund its 2020 budget.
However, after the initial drop the losses were pared somewhat, with each contract trading down slightly more than 21 per cent.
While Brent recovered at $35.40 per barrel, WTI traded at $32.17 per barrel.
On Thursday, OPEC recommended additional production cuts of 1.5 million barrels per day starting in April and extending until the end of the year.
The proposal was conditional on support from non-OPEC producers, including Russia. OPEC cautioned that the deal could only be applied on a pro-rata basis with core members set to cut 1 million barrels per day and non-OPEC partners expected to cut 500,000 barrels per day.
But OPEC ally Russia rejected the additional cuts when the 14-member cartel and its allies, known as OPEC+, met on Friday.
The meeting also concluded with no directive about the production cuts that are currently in place, but set to expire at the end of the month.
On Saturday Saudi Arabia announced massive discounts to its official selling prices for April and the nation is reportedly preparing to increase its production above the 10 million barrel per day mark, according to a Reuters report.
The kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day.