The Ministry of Finance, Budget and National Planning, Zainab Ahmed, has said the coronavirus which had led to a huge drop in crude oil prices will put a severe strain on the Federal Government’s budget. Ahmed said this at a consultative roundtable with the Governor of the Central Bank of Nigeria, Mr Godwin Emefiele, in Abuja on Wednesday. She said with the outbreak of the virus, time had come for the country to begin to live a life without oil.
Crude oil price had slumped by 30 per cent to about $30 per barrel on Monday, but edged higher to $37 per barrel on Tuesday. The 2020 budget which was signed into law by the President, Major General Muhammadu Buhari (retd.), has total expenditure of N10.6tn. The budget is based on an oil price benchmark of $57 per barrel, a daily oil production estimate of 2.18 million barrels per day and an exchange rate of N305 per dollar.
Ahmed who described the current drop in crude oil price as a shock to the government, however, said there was no need for Nigerians to panic. She said, “The sudden and unexpected drop in crude prices to just over $30 comes as a shock and great surprise. “These strong headwinds will reinforce the wakeup call to a life without oil. But that should not spread panic and speculation in our economy.”
The minister added, “We are working as government to strengthen our macroeconomic fundamentals. Today, we are far stronger and more robust than in 2014-2016. “There is no doubt that the combination of crude oil price crash and coronavirus will put severe strain on our budget revenue, forex and many sectors.” She said the Federal Government had started taking steps to cushion the impact of oil price decline on the economy adding that the budget benchmark price was being reviewed to reflect current economic realities.
Ahmed said more efforts were being made to raise revenue, plug the leakages and intensify engagement and support of subnational entities and the private sector in the economic recovery and growth programmes of the government. Emefiele in his opening remarks said the session was more relevant today than ever before, given the external challenges that the Nigerian economy faced.
Some of these challenges, according to him, include effects of the trade and technology wars, and more importantly the recent spread of the coronavirus. He said, “Notwithstanding our current measures aimed at supporting growth, our economy faces considerable challenges. “GDP growth remains below our annual population growth rate at 2.6 per cent. “Our reliance on crude oil for more than 80 per cent of our foreign exchange earnings and 60 per cent of government revenues means our economy is exposed to the impact of the coronavirus on crude oil prices.”
The apex bank boss said given this challenge, it was imperative that the roundtable session came up with well-structured funding models, that would mobilise funds from banks and other financial institutions. He said this fund would be channelled into critical infrastructure projects while providing attractive returns to investors. Emefiele said credit from banks to the economy rose from N15.3tn in May 2019 to over N17.4tn in January this year.
The President of the Dangote Group, Alhaji Aliko Dangote, said there was a need for an urgent diversification of the Nigerian economy in view of the crash in crude oil price. He said for the economy to be fully diversified, the government must quickly address the issue of interest rate, exchange rate and long-term funding for businesses. Dangote said, “The diversification of this economy is very important; in fact, we are late. Since 1979 that I came to Lagos, people have been talking about the diversification of the Nigerian economy.” The founder of Zenith Bank Plc, Mr Jim Ovia, said a vibrant banking sector was vital for the diversification of the Nigerian economy.