The international oil benchmark for Brent crude, on Sunday did not only fall to its lowest this year but also lower than the proposed 2019 budget benchmark.
The Brent crashed by $3.80 to $58 per barrel as of 5:00pm Nigerian time.
However, the trouble for Nigeria is that the Federal Executive Council, on October 24, approved a budget proposal of N8.73tn for 2019 pegging the crude at $60 per barrel, a $9.5 rise from $50.5 for the 2018 budget.
The Brent enjoyed a four-year high of $86.74 per barrel early last month after the $66 it rose to early this year.
A data from the central bank of Nigeria reveals a fall in the reserves to $41.52bn as of November 22 from a high $47.865bn on May 10.
Experts have raised concerns, advising the government to revise its spending and the oil price benchmark for the 2019 budget downwards.
The Managing Director of Financial Derivatives Company Limited, Mr Bismarck Rewane, said some projects would be deferred, the country’s trade surplus would reduce, and the external reserves would come under pressure.
According to him, this development leaves the government to choose between the two options of: adjustments and restrictions.
Should the government consider adjustments, he warned the government of its effect ahead of the 2019 elections.
He said, “If you increase the restrictions, then you increase the premium on the currency. The adjustments are not easy and you cannot do that before an election. But if you have to do it, you have to do it. Even at $58, you can still get by but it is quite imminent that you have to make some adjustments.”
He called on the sensitization of Nigerians by the government to the reality that “our external imbalances are going to increase and that we might be heading towards some problems.”
“This is what we have been talking about: that we need to deal with the structural rigidities in the system to allow for adjustments. When the price was going up, we should have seen that adjustment to ensure that things get better. But when the price went up, things did not get better. Now the price is going down, things are going to get worse,” Rewane added.
Also speaking on the effect of the crash in oil price, the Director-General, West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, said the oil price drop would lead to sharp declines in government revenue and foreign exchange earnings, with implications for capital project financing.
He said, “You cannot rely on a commodity whose price you don’t control. We should see oil revenue as a windfall, not to rely on it. It is not reliable at all because oil price fluctuates; so we are vulnerable to this negative oil shock, and people have been saying it for long that we need to get out of it.”
He advised diversification from oil as way to salvage the country’s economy when prices of oil crash.
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