Nigeria lowered its budgeted oil price for a second time in less than a month, signalling government revenue is set to plunge in Africa’s biggest crude producer.
The medium-term budget plan for 2015 to 2017 will be based on an oil price of $65 a barrel, Paul Nwabuikwu, an Abuja-based spokesman for the Finance Ministry, said in an e-mail today. On Nov. 16, Finance Minister Ngozi Okonjo-Iweala had cut the proposed benchmark price to $73 a barrel for 2015, down 5.8 percent from this year’s budgeted price.
Global oil prices have plunged more than a third since June, roiling Nigeria’s markets , eroding foreign-currency reserves and prompting policy makers to devalue the naira for the first time in three years. With crude exports accounting for about 70 percent of government income, the revenue slump may force authorities to curb spending in an election year.
“It is a realistic price for the country,” Bismarck Rewane, chief executive officer of Lagos-based consultancy Financial Derivatives Co., said by phone today from London. “The cut will mean a significant reduction to the budget. The government has to push for the legislature to accept it.”
The revised budget plan was submitted to the National Assembly for approval, Nwabuikwu said.
‘Fiscal Flexibility’
“This is a good plan, as it means there is some fiscal flexibility,” Razia Khan, the London-based head of African economic research at Standard Chartered Plc, said by e-mail today. “The downside is that we will not get great detail on spending allocations.”
The naira snapped a two-day gain, falling 0.5 percent to 180.45 against the dollar on the interbank market as of 10:01 a.m. in Lagos, the commercial capital.
Central Bank of Nigeria Governor Godwin Emefiele said last week that earlier revisions to the budgeted oil price to $73 a barrel may have been “overly optimistic.”
Nigeria is among oil exporters, including Russia, Venezuela and Iran, whose budgets and currencies are being pressured by the drop in crude prices. The Organization of Petroleum Exporting Countries kept its output ceiling unchanged last week, pushing prices to five-year lows.
The government in Africa’s largest economy is also struggling to contain an Islamist insurgency that has killed more than 13,000 since 2009 as political tensions rise before February elections.
President Goodluck Jonathan, who’s seeking re-election, is facing the stiffest opposition challenge to the ruling People’s Democratic Party party in 16 years after three opposition groups merged last year to form the All Progressives Congress.
Credit: Bloomberg