The Federal Government on Tuesday revealed plans to cut the oil price benchmark for the current budget to $20 per barrel. The development would make it the second time the Federal Government is slashing the oil benchmark for the 2020 budget. The sharp fall in the price of crude oil had earlier forced the government to slash the benchmark from $57 per barrel to $30. Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed the Federal Government’s intention to further slash the benchmark on Tuesday, according to a report by Reuters.
The report said Ahmed spoke during a web conference which focused on the impact of low oil prices on Nigeria’s economy. “We are in the process of an amendment that is bringing down the revenue indicator to $20 per barrel,” the minister said at the conference. Decline in revenue following the sharp fall in the price of crude oil is already taking a toll on Nigeria’s economy and Ahmed had in March disclosed that the N10.59tn budget would be slashed by 15 per cent.
The minister, at the web conference, also said Nigeria’s oil and gas projects would be delivered later than originally planned as a result of upstream budget cuts. The Federal Government is planning to cut oil production to 1.7 million barrels per day from the 2.1 million barrels per day proposed in the 2020 budget. The planned production cut is to be made in line with an agreement reached by the Organisation of Petroleum Exporting Countries and its allies better known as OPEC+.
Reuters also reported that the web conference deliberated on Nigeria’s debt servicing costs. Ahmed said Nigeria was in talks with creditors to defer debt service obligations to 2021 and beyond. Shedding further light on the talks, the minister said, “It is not debt forgiveness; it is just rescheduling of our obligations.” However, the minister did not identify the concerned lenders the government was discussing the debt service deferment plans with.
The minister explained that the request for deferment of debt service was informed by the fact that Nigeria was spending as much as 58 per cent to 60 per cent of its revenue on debt servicing. Similarly, the Director-General of the Budget Office, Ben Akabueze, said oil revenue was expected to fall by more than 80 per cent as a result of the impact of the COVID -19 pandemic. Akabueze noted that the Federal Government had revised its projections and was expecting the economy to contract by 3.4 per cent in 2020.
The government had initially projected a 2.9 per cent growth in the year. The Budget Office boss further noted that the cost of debt servicing was expected to rise by N200bn in 2020. “Nigeria is currently facing significant fiscal risks,” he said, adding that the country remained highly vulnerable to the current global economic disruption caused by the coronavirus crisis. Akabueze said the average production cost of Nigerian crude had been revised downwards from about $33 per barrel to $28 per barrel, with implications for petroleum profit tax.
He said the estimated net oil and gas revenue available for the Federation Account Allocation Committee distribution had declined by 80 per cent from N5.47tn to N1.12tn. He noted that petrol under-recovery, also known as subsidy, had been reduced from N457bn to zero. Akabueze said projected Customs revenue had dropped from N1.5tn to N1.16tn, while amounts accruable to the Value Added Tax Pool Account declined by N60.42bn from N2.09tn to N2.03tn.
He said the amount accruable to the Federation Account dropped from N8.57tn to N3.89tn, while the projected Federal Government’s receipt from the Federation Account reduced to N2.35tn from N4.83tn. According to him, estimated receipts by states and local governments from the Federation Account dropped to N2.05tn and N1.51tn respectively from N3.34tn and N2.49tn. Minister of State for Budget and National Planning, Prince Clem Agba, on Tuesday said the Federal Government expects the injection of about N2tn stimulus into the economy in response to the COVID-19 pandemic and the fall in oil prices.
Agba spoke at a webinar on “Citizens Dialogue Session on Government Fiscal Policy Decisions to the Fall in Oil Process and the COVID-19 Pandemic” organised by the Ministry of Finance. “All in all, when everything is put together, both government funding and the funds we are expected to get from the Central Bank of Nigeria, Bank of Industry and other multilateral agencies and grants that we are receiving, we expect to get a stimulus of about N2tn going into the economy,” he said.