Projection in the 2019 budget whereby the benchmark price for revenue from crude oil is $60 per barrel is unrealistic, according to finance experts

By Anayo Ezugwu

Despite the recent increase in the price of crude oil, finance experts are still worried over the benchmark of $60 per barrel proposed in the 2019 budget by President Muhammadu Buhari. The crude oil price rebound to $60.62 per barrel as of Thursday, January 10.

Oil price on Thursday steadied with gains capped by the lack of any clear resolution to U.S.-China trade talks and rising United States, U.S. fuel stockpiles. The U.S. West Texas Intermediate, WTI, crude oil futures were at $52.27 per barrel, down 9 cents from their last settlement. International Brent crude futures were down 6 cents, at $61.38 per barrel.

But Austin Nweze, lecturer, Pan-Atlantic University, Lagos, and economic analyst, said the 2019 budget is facing a bit of a dicey situation. The country will face the challenge of how to finance the budget based on fluctuations of oil price. “Since everything we do in Nigeria revolves around oil and seeing the price fluctuating from $80 to $50, while the 2019 benchmark is $60 per barrel, it will be difficult to finance the budget.

“And don’t forget that this is an election year and most election year budget is usually made considering the election. But again the challenge is how we finance the budget based on money from oil. Again they have been borrowing as well, so it is a bit of a dicey situation,” he said.

This means that the government is in a tight corner unless they print money or borrow to finance the budget which they can easily do. “It is just that people are crying that the borrowing is on the high side and going out of control, so it is a bit of a dicey situation. If I were the government I wouldn’t be over ambitious as to take the oil benchmark to $60 per barrel knowing the situation.

“I would have made it $45 per barrel. So whatever that becomes the excess would be moved to the Excess Crude Account and then move it again to the Sovereign Wealth Fund.  Our problem is not just the oil price but also the quota from OPEC. Unless we decide to sell the excess at the black market or exceed the OPEC and face the sanction,” he said.

According to him, “We can also talk to OPEC to consider the situation in country and review the quota by increasing it. They can also disobey OPEC or find other sources. These are the options the government can take because this is not the best of times for any government because the revenue has shrunk. I think basically nothing will be done till after the elections. As it is right now, it is something we have to live with. The 2019 budget implementation will not start until after the elections.”

Nweze is expecting the National Assembly to cut the 2019 oil benchmark to $40 or $45 per barrel in their wisdom as they are at liberty to do that.

On his part, Johnson Chukwu, managing director, Cowry Asset Management Limited, acknowledged that the fluctuation in oil price would be a major challenge in financing 2019 budget as the situation means that the budget projection is not viable.

“I expect the federal government to review the assumption and that will imply that they will also have to review the projected expenditure of N8.83 trillion because once you adjust the crude benchmark, then it will affect your revenue. Again, we have seen the Organisation of Petroleum Exporting Countries impose production cut on Nigeria; that means that it may be difficult for Nigeria to achieve the 2.3 million barrels per day of crude production,” he said.

Similarly, Uche Uwaleke, head of Department, Banking and Finance, Nasarawa State University, Keffi, said the $60 per barrel oil price benchmark of the 2019 budget is unrealistic. He said a few months ago when the MTEF 2019-2021 was still in the works, this fundamental assumption seemed realistic.

“As a matter of fact, international crude oil price averaged US$75 per barrel in the third quarter of 2018, according to the ministry of petroleum resources. So, it made sense to use US$60 per barrel at the time. But, that was then. The stark reality today is that developments in the international oil market already suggest an outlook that is full of uncertainties regarding the crude oil price,” he said.

The 2019 budget, presented to the National Assembly on Wednesday, December 19, is based on oil production of 2.3 million barrels per day, with an oil benchmark price of $60 per barrel and exchange rate of N305 to a dollar.

There have been concerns that the $60 per barrel benchmark price may be too ambitious following the recent fluctuation in the international oil market. Based on a production volume of 2.3 million barrels per day and with a budget benchmark of $60 per day, the federal government is targeting about N3.68trillion revenue from oil this year.

– Jan. 11, 2019 @ 16:49 GMT |