NIGERIA’S federal government has launched a committee to reassess its N10.59trn ($28.8bn) 2020 budget after the recent collapse in oil prices as a result of the coronavirus outbreak that has precipitated a drop in demand.
As a result of the spread of the virus, Chinese output has been severely affected, which in turn has had a domino effect on global industrial production. With supply far outstripping demand, this has led to a collapse in crude oil prices, with Brent Crude, a grade identical to Nigeria’s Light Bonny Crude falling from $45.72 per barrel over the weekend to $33.45 a barrel yesterday.
Nigeria is particularly vulnerable to the volatility of the global crude oil market as petroleum accounts for about 95% of government earnings. Also, Nigeria’s 2020 budget is predicated on the nation selling 2m barrels of oil a day at a price of $57, so with prices collapsing and the Organisation of petroleum Exporting Countries set to reduce production quotas, the government will find it almost impossible to fund its budget.
Fearing the need to address the problem President Muhammadu Buhari has created a committee to look at the problem and come up with suggestions and solutions. Members include finance minister Zainab Ahmed, minister of state for petroleum Timipre Sylva, Central Bank of Nigeria governor Godwin Emefiele and the managing director of the Nigeria National Petroleum Corporation Mallam Mele Kyari.
Aside the task of reducing the size of the budget, the committee is also saddled with the responsibility of reducing the oil benchmark from the approved $57 per barrel to reflect the current realities. Mr Emefiele said the economic impact of the coronavirus was already becoming severe, as it has led to a fall in private consumption and created a global demand slowdown.
Owing to these developments, analysts have predicted an imminent devaluation of the naira. Bismarck Rewane, a member of President Buhari’s Economic Advisory Council, said the country should now face the reality because it knew what to do but was wasting time.
Ms Ahmed said the committee was expected to submit its report to the president on its eventual decision by tomorrow at the latest. She explained that the committee would determine a new oil benchmark, the size of a new budget and subsequently make such new decisions public.
