Word filtered out recently that the Senate has finalized its deliberations on the 2015 Appropriation Bill which was laid before both houses on the National Assembly on December 18, 2014. The deliberations on the details of the budget proposals was affected by the overbearing environment of electioneering as both houses had to adjourn to enable members participate in canvassing for support for their various individual political platforms and one suspects that but for the postponement which the elections suffered, this matter could have been probably concluded and laid to rest by now. But it is in order to salute the Senate for the presence of mind to continue to act in the belief that in spite of the uncertainties fostered by the pending general elections, life must go on. And, really, you cannot but wonder as an analyst if it will not be better to slow down the tempo on activities on Budget 2015 for the elections to be concluded and the outcome known, for whatever happens, this budget will not be implemented as approved. Little wonder it has been generally dubbed as a “Budget of Transition”; a transition between regimes. As can be gleaned from the title of the article, what we intend to do hereafter is to share our views on some of the key decisions that have been highlighted following the deliberations on the budget by the Senate.
We shall consider some of the key assumptions, including the benchmark price of oil which was adopted at $52 per barrel. It is certainly stating the obvious to note that the uncertainty arising from the price of oil has made the preparation of Budget 2015 a nightmare even though, as has been celebrated by the coordinating minister of the economy and minister of finance, the Nigerian economy in Budget 2015 is dependent on revenue from oil to the extent of 53 percent, having dropped from 57 percent last year and an average of 75 percent at which it remained for a long time. Oil still accounts for over 70 percent of dollar revenue into the economy and therefore still plays a dominant role in determining the ability of government to maintain macroeconomic stability. It will be recalled that the initial benchmark that was considered in November 2014 was $78 per barrel, which was then reduced to $73 following the falling price of oil in the international market. What is out there in social media is that in arriving at the benchmark of oil, the executive requested for benchmark price of $50/barrel to be used for the preparation of the budget but as has been the case for a long time now, the legislature was asking for $55/barrel before a compromise of $52 was agreed.
There is no doubt that a benchmark of $52/barrel against the background of the unfolding scenario in the oil market seems realistic as price of oil in currently above $60 per barrel with the expectations that it should tend slightly upwards before the end of the year, even as there is a consensus that the era of oil price above $100 is a possibility that we might not witness in the near future. But while we are still at this, it is reported that the volume of oil included in the budget which the executive reduced to about 2.2 million barrels per day has been jacked up to the level in Budget 2014. This is despite the well-advertised leakages that have assailed oil production in the country. It was recently reported that when it appeared before the National Assembly to defend its budget, the Navy alluded to the fact that the country is losing to oil theft and vandalism a massive volume of about 100,000 barrels a day which amounts to a loss of over N1 billion per day to accruing to the Federation Account. The Navy reportedly asked for its budget provision to be increased to enable it stem this haemorrhage. But what is important in this connection is that this country must imbibe the culture of building up fiscal buffers to cushion the economy against vulnerabilities that arise from external shocks due to volatility in commodity prices. From the experience of the recent fall in the price of oil, it would appear that even though the oil exporting countries had been differently impacted, Nigeria and Venezuela appear to have been the most affected because of unavailability of fiscal buffers. And, therefore, the legislature is hereby advised to take this caution on board as it discharges its future responsibility in this connection.
An exchange rate of N190 to the dollar has been adopted for Budget 2015, up from N165 exchange rate which the executive used for the calculations of the budget details. This rate is certainly realistic but must not be increased no matter whenever the budget is going to be finalized. This is consistent with the argument we have just advanced with regard to the need to err on the side of conservatism.
Boniface Chizea
