Fresh trouble as crude oil prices’ fall continues

DESPITE the Federal Government’s using a crude oil price benchmark of N38 for its 2016 proposed budget, an economic crisis looms. This is because by yesterday, the oil price continued to plummet, falling below $37 per barrel and international Brent crashing to below $40 for the first time since early 2009. The prices may fall further.

Lamenting the crash in oil price, Asset Management Company of Nigeria (AMCON) said the decline had far-reaching implications in its efforts to meet obligations

Besides, about N500 billion has been earmarked for social welfare intervention programmes in next year’s fiscal plan. Potential beneficiaries of the welfare programme, however, would have to present evidence of children’s enrolment in school and of immunisation.

Already, global stock markets fell sharply yesterday as oil prices remained significantly low as the Organisation of Petroleum Exporting Countries (OPEC) decided to leave production unchanged.
Economic experts, who spoke with The Guardian yesterday, believed that the government had come to terms with the reality of the plummeting crude oil prices and had decided to align with its resources in the 2016 budget proposal.

Speaking with The Guardian yesterday, Director, Centre for Petroleum Energy Economics and Law, University of Ibadan, Prof. Adeola Adenikinju, said that the $38 per barrel was realistic, describing it as a conservative approach by the government.

According to him: “It will encourage the government to cut its coat according to its cloth. However, if the government experiences an upside in the global price of oil, then it can always submit a supplementary appropriation bill to the National Assembly.”

The Managing Director of AMCON, Ahmed Kuru, who noted that it had about N5.6 trillion debt to honour in the next 10 years, said falling oil prices reduced government’s ability to meet its own commitment.

“The price of crude oil below $40 per barrel impacts the government’s ability to honor its obligations to those that are owing us. The impairment of oil assets we took over is another problem. Real-estate assets are challenged as the economy is going down.

“There are quite a lot of tank farms in Apapa. That asset is a specialised asset.  Whoever that will indicate interest will do so based on cash flow projection, expecting that five years or 10 years down the line, it would have been able to pay back.

“To dispose them is a big challenge and disposing them at the prices we got them is also another challenge. Some of those assets were revalued and revaluation is most times based on discretion”, Kuru said.

Transmitting the 2016, 2017 and 2018 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) ‎yesterday, President Muhammadu Buhari disclosed that “the Federal Government will collaborate with state governments to institute well-structured social welfare intervention programmes such as: school feeding programme initiatives, conditional cash transfer to the most vulnerable, and post-NYSC grant.”

In the MTEF /FSP document which was presented to senators at the commencement of session yesterday, the president said:”N500 billion has been provided in 2016 Budget as social investments for these programmes. These interventions will start as a pilot scheme and work towards securing the support donor agencies and our development partners in order to minimise potential risks.”

The document further stated:”A phased social welfare programme will be created to cater for a larger population of the poorest and most vulnerable Nigerians upon the evidence of children’s enrolment in school and evidence of immunisation”

The document provides N20 billion for the Presidential Amnesty Programme.
This is in sharp contrast with the figure of N47.39 billion provided for the same programme in 2015. It also announced that the Federal Government will prune down its size.

In a sub-head tagged “size of government”, the MTEF stated:”Government will in the near-to-medium term, continue to prune the size of government and its MDAs to more efficient levels without compromising efficiency and effectiveness. Over the medium term however, government will revisit the need to rationalise the agencies of government and strategically implement relevant provisions.”
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The Federal Government has also announced its intention not to increase salaries within the period covered by the MTEF. “The mounting number of claims for increases in salaries and allowances including pensions and other benefits will need to be curtailed as part of the efforts at re-balancing the structure of government spending” the document stated.