2021 Budget: Rise In Crude Oil Price Rekindles Hope For Revenue Growth- Expert

The increase in crude oil prices over the Federal Government’s budget benchmark for the 2021 fiscal period has rekindled hopes for increase in government’s revenue.

Driven by the Covid-19 pandemic, Brent Crude plunged to its worst levels in years, as it sold below $20 per barrel in April.

There has also been a huge decline in global fuel demand as governments stepped up efforts to curb the spread of the virus.

But with a sharp rise in crude oil price to $56.53 per barrel on Tuesday, a price $16.53 higher than the benchmark price for the 2021 budget, experts said the surge would be a lift to the country’s revenue underperformance.

Nigeria relies on crude export with over 90 per cent of it’s export revenue coming from its sale.

Speaking on the development, a Professor of Capital Market Studies at the Nassarawa State University, Keffi, Uche Uwaleke, said the increase in crude oil prices signals growth for the Nigeria revenue base as it will lead to more oil revenue than budgeted.

The 2021 approved budget has oil revenue of N2.1trn and oil production target of 1.86 million barrels per day, at $40 per barrel.

He explained that a higher crude oil price would lead to a stronger external reserve which is critical to any nation’s economy.

He said, “With this rise in crude oil price, we are expecting a positive impact on the economy, considering the fact that we still depend a lot on crude oil revenue.

“This is positive for our revenue generation, as it may exceed what is in the budget. The oil price in the 2021 budget is $40, if the current crude oil price is $56, then it means we may get more than we expect.”

Speaking further, Uwaleke said that the implication of the increase in oil price is that there would be stable exchange rate, strong external reserve, rise in investor’s confidence and increase in foreign investments.

He said, “A continued rise in crude oil prices would mean increased revenue for us, which would increase our capital spending, especially on projects that would promote job creation.

“It would lead to improvement in foreign investments, and improve imports.”

He, however, noted that the government may be forced to subsidise the domestic market, adding that it would lead to an increase in domestic pump price of petroleum product, as the nation still imports petroleum products.

“For the nation to benefit from the increased crude oil price, efforts must be geared towards achieving the expected production of 1.86 million barrel daily,” he added.