The recent crude oil production adjustment agreed by member countries of the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC countries led by Russia is likely to affect the effective implementation of the 2019 budget currently before the National Assembly. The oil cartels recently lowered Nigeria’s daily oil production output to 1.685 million barrel per day (mbd).
The trouble for the budget, and by extension, the economy, is that with oil price around $80 during the budget preparation, the Federal Government reportedly ignored the $50 per barrel oil price benchmark proposed by the Economic Recovery Growth Plan (ERGP). Instead, government settled for $60 per barrel oil price for the 2019 budget.
One month since the budget presentation by President Muhammadu Buhari, from a 2018 peak of $86 per barrel in October 2018, oil price has dropped to less than $50 per barrel before rebounding to about $60 last week. Forecast of oil price in the international market indicates that price could drop even further, causing more troubles for Nigeria whose revenue is largely anchored on oil receipts. It, therefore, follows that, to fund the N8.83 trillion budget, the Federal Government’s production output estimate of 2.3mbd may have run into troubled waters, with 1.6mbd off target.
Worse still, a document containing the production adjustment commitments by OPEC member countries, reveals that Nigeria agreed to voluntarily cut 53,000 barrels per day of her crude oil from getting to the international market. This is part of the agreement reportedly reached at the recent 175th meeting of the OPEC Conference and 5th non-OPEC ministerial meeting in Vienna, Austria, in December 2018. Other members such as Algeria, Angola, Equatorial Guinea, etc, also agreed to slash their daily output levels. Collectively, the member countries are cutting 812,000 barrels per day.
As if these troubles were not enough, the International Monetary Fund (IMF) has added more uncertainty to Nigeria’s already bleak economic outlook for 2019, by slicing the Gross Domestic Production (GDP) projection to 2 percent, down from the 2.3 percent it had predicted for Nigeria previously. This is contained in the Fund’s World Economic Outlook update titled, “A Weakening Global Expansion”, released early last week.
In the report, IMF said its decision on Nigeria’s growth projection was mainly due to softening crude oil prices. In other words, it will be risky for Nigeria to bank on the current fluctuations in the price of oil price. Ironically, the Fund has projected a higher growth forecast for other sub-Saharan African countries to 3.5 per cent in 2019 and 3.6 per cent in 2020.
This is not good news for Nigeria. But, it is not difficult to fathom what informed IMF’s growth forecast cut for this year beyond the reasons it has given. We recall that on many occasions in the past, the multilateral financial institution cautioned Nigerian government to take advantage of recent opportunities created by the stability in oil prices to reform the economy, curtail her rising debt.
It also warned that the good times will not last long. The reality of that warning may have dawned on the country already. Last month, IMF said it saw the gathering storm coming.
The economy, according to the global financial agency did not receive the needed boost from policy implementations that can withstand the shocks that pushed it into recession. Nigeria came out of recession in 2017 after five economic contractions. But the Fund said Nigeria celebrated the exit of recession too early, noting that what the government regarded as economic recovery came on the back of a new foreign exchange (FX) regime, rising oil prices, attractive yields on government securities and the tightening of monetary policy regime by the CBN.
No doubt, the concern about the economy, especially in an election year is real, with huge campaign spending that may surpass previous spending put together. It may also increase the volume of Non-Performing Loans of banks.
All of this could make our economy more vulnerable than before, driven by weak fiscal deficits, low revenue generation, infrastructural deficit, high capital outlay for debt servicing and declining asset quality in the banking sector.
We call for a concrete economic blueprint to ginger economic growth. The government must come up with a detailed policy action plans, and timelines that will focus on growth-friendly fiscal and macroeconomic adjustments that will see the non-oil sector as the alternative source of revenue earner.
Diversification remains the key to economic growth and recovery. In addition, policy makers should not ignore the advice from global financial institutions on the way forward for Nigerian economy.