Austerity Measure Bits: Expect lower crude price says Okonjo-Iweala

There is expectation that the austerity measure will bit harder as the Coordinating Minister for the Economy and Minister for Finance, Mrs. Ngozi Okonjo-Iweala, has told Nigerians to put on their shock absorption regalia to contain worse crude oil pricing in the international market.

She announced this yesterday in Abuja at a seminar of the Securities and Exchange Commission (SEC) after highlighting some factors that led to the present slump that have not actually abated. From her analysis, since the contributing factors to the price drop, which include more discovery of oil in some countries, over production of crude by member countries and less dependence on oil by the bigger economies still prevail, an opposite trend to the drop would hardly be expected soon.

But she, however, gave Nigerians reasons not to panic about the situation as she assured that every economic palliative measure so far taken and the ones anticipated are targeted at ensuring that the shock on the common man is assuaged.

In her assuring message, she said: “Let me clearly state that this event the recent drop in oil price did not come to us as a surprise. We had anticipated this even before the 2008 global financial crises. And that is why the economic management team has consistently argued for a reasonably lower benchmark oil price to enable us build up fiscal buffers.”

According to her, as early as 10 years ago, “we had put in place the ECA, which was very useful during the 2008 financial crisis when oil price fell to as low as $38 per barrel from $147 per barrel. We didn’t need to run to the World Bank or the IMF as many nations did because we had savings of up to $22 billion. By August 2011, the amount had been depleted to $4 billion and we built it up to $12 billion by December 2012.”

She recalled that the nation’s economic team had alerted of an imminent oil price fall as early as 2012, and pegged the extent of loss at about $12 billion annually. The minister pepped up Nigerians that the nation still has at least $4 billion as “buffer that can serve us through these hard times of falling oil prices and global economic uncertainty. In addition, we have a short to medium term strategy typically used to deal with this kind of situation.”

Some of the measures already put in place to cushion the shock, according to the minister, include, “lowering of the price benchmark to $73 per barrel but we are not taking a point-estimate position as regards the future price of oil. We fully recognise that the price of oil may fall lower or even rebound. Prices may fall as low as $60 per barrel or rebound to about $85 per barrel.”

She also mentioned that on the aspect of revenue, a “lot of work is already underway prior to the fall in the price to improve non-oil revenue generation. This was sequel to our rebasing exercise, which demonstrated large N510 billion GDP with a diverse non-oil base.”

Another area the government assured it would make amends to save cost in the face of the expected dwindled economy is cutting down on recurrent expenditure in the 2015 Budget, especially the purchase of administrative equipment, overseas travels and trainings,” and others deemed not so compelling.

FG will also continue with the proper documentation of the workforce of the government with its existing computerised approach to cut down on or totally eliminate ghost workers that had in the past weeded off about 60,000 such non-existent workers from the system and saved the nation N160 billion.

“This is being done in a manner that is pro-poor and pro-average Nigerians as the priority must be and remain on the vital sectors like education, healthcare, security and growth stimulating factors like agriculture, housing and other aspects that create jobs.

“Expenditures related to the average Nigerian will be the focus. In fact, let me say here that we are building a social safety net for the poor and vulnerable in the society with support from the World Bank and the DFID. This is a direct outcome of Mr. President’s social policy drive.”

She did not, however, leave untouched the effect of international crude price drop on the local price of petroleum products. On this she noted that: “Subsidies in the Mid-Term Economic Framework (MTEF) have fallen to N458.68 billion because the declining oil price would yield a lower landing cost of fuel, meaning a lower amount of subsidy would be needed. Now, it is natural that subsidy cost would reduce, but they have not been phased out as reflected in the MTEF.”