An economist and Dean, Faculty of Social Science, Kaduna State University, Aminu Usman, has urged the federal government to recast the 2020 budget to suit current global oil price reality.
The failure to reach an agreement during a meeting between the Organisation of Petroleum Exporting Countries (OPEC) and Russia had sparked an oil war which crashed Brent oil price to $30.02 per barrel, while Nigerian oil price fell to $48.05 per barrel.
The country’s N10.59 trillion budget is expected to be funded from oil revenue by 35.2% at a benchmark price of $57 per barrel.
Usman told THE WHISTLER that, the Nigerian government must respond appropriately to minimise the negative impact of the crash in global oil price.
Usman advised the government to review its revenue and expenditure profile downwards, and trim budget items that do not add value, especially those in the recurrent expenditure.Such a move, according to the expert, would bridge funding gap in the budget, adding that as a result, the funding gap would not widen beyond what could be managed.
Usman said that trimming the budget would minimise government borrowing that would result from the drop in oil price.
He said further that excessive borrowing by the government would crowd out the private sector, adding that there would be serious cash challenges for the government and the country in general.He also advised state governments to do the same adjustment to their budgets in the interest of their people.
He said: “Rethinking the budget is not exclusive to the federal government. Various states governments must also recast their budgets, because revenue will be very poor relative to happenings in the global oil market.”
Usman further told this website that the country was in an emergency situation which must be taken seriously, as “it calls for the National Assembly to quickly enact a law that will make national saving compulsory rather than voluntary, which allows misuse of money in the excess oil crude account.”
The expert said the country cannot base its argument on prayers that the market will rebound after the coronavirus has been settled, as its not certain if the virus will be contained in the short run.
Usman also argued that the country at this point does not have back up options, since the excess crude account had been depleted, while export is still very feeble with respect to its contribution to the nation’s economy.
Similarly, Oyinola Olaniyi, a professor at the Department of Economics, University of Abuja, said that if the plummet in global oil price is not short-lived, the government should make some adjustment in the budget.
Olaniyi urged the Central Bank of Nigeria (CBN) to take an emergency response, as the development threatens the Naira, as well as Nigerian’s purchasing power.
He however said that if the CBN does not give an emergency response, the country might fall into recession, adding that there were hopes that it would be short-lived.
Meanwhile, Nigeria’s Excess Crude Account (ECA), that is supposed to protect the country’s budgets against shortfalls caused by the volatility in global oil price, had been depleted from $2.45 billion to $71.8 million in less than five years.