Experts disagree on $60/b benchmark for budget 2019
Economic experts have disagreed over the decision of the federal government to retain $60 per barrel as its crude oil price benchmark for budget 2019 in spite of recent slide in crude oil price below $60 per barrel.
Some experts who spoke to Vanguard, opined that retention of $60 per barrel is ambitious and poses a major risk to projections for the year, others however differ saying that forecast for crude oil price for 2019 is still above $60.
A renowned energy analyst, Mr. Bala Zaka said that the federal government was too ambitious to emerge with the $60 per barrel benchmark for the 2018 budget.
He said: “I expected the government to go below $50 because from the way things are going, the price of oil may not go beyond $70 per barrel next year.
“Consequently, the proposed $60 is not realistic. It is good for us to have surplus than deficit in the course of budgeting. This is mainly because deficit brings stress and unnecessary panic. But there is always no harm to have surplus.”
Also speaking, Director General, Lagos Chambers of Commerce and Industry, LCCI, Mr. Muda Yusuf said: “Data from the Organisation of Petroleum Exporting Countries, OPEC, shows that oil prices are trending down at $59.96p/bl on 29th November from $88p/bl one month ago. This is below 2019-2021 Medium-Term Expenditure Framework, MTEF, benchmark of $60p/bl. The declining global oil price poses a major risk to FG’s economic projections for 2019 fiscal year as well as impact adversely on its MTEF if the trend continues.”
On his part, Dr. Boniface Chizea, Economist, management consultant and Chief Executive Officer, BIC Consultancy Services noted that, “A situation whereby the budget benchmark is above the oil price is ill advised. But we should not be overly concerned about this for now. All that would happen is that the deficit included in the budget will be exceeded and there will be further recourse to increased borrowing.
However, Managing Director/CEO, FSL Asset Management, Tola Odukoya, said: “I think the $60 benchamrk is reasonable in view of the outlook in the crude oil market for next market. If you look at it, OPEC has agreed on production cut and part of the reasons for that production cut is the fact that prices have dropped to like $50 per barrel. So the whole idea is to reduce production in order to bring prices to somewhere between $70 and $75 per barrel. If Nigeria is retaining $60 benchmark, I think it is in line with global expectation for prices.
What we may need to be concerned about is the production level, (I think federal government is budgeting about 2.2 million barrels per day), which may not be realistic in view of the OPEC production cut that is already affecting Nigeria. However, in terms of the pricing, I think it is okay in line with outlook and expectation for oil prices next year.
According to the Managing Director/CEO of Prorisk Insurance Brokers Limited, Mr. Oluwagbemiga Olawoyin, while must have decided to retain $60 per barrel after due consultation, the volatility in the crude oil market makes the decision risky.
He said: “The International Monetary Fund, IMF, came up with an estimate that in 2019, Nigeria’s GDP will grow by about three percent and one of their parameters is that oil price will be relatively higher than what it is. So government is being optimistic and I think that I can join them on the side of their optimism.
But if oil price continues to decline, then we will move back into recession. We will be back where we were in 2016. The only difference now will just be that the level of our external reserve is better than what it was in 2016. We are probably better positioned a bit to withstand it. But if the oil price remains as low as it is or get lower, the realization of the budget will be put in serious doubt.”