Nigeria’s $30 Crude Oil Price Unrealistic – Prof Uwaleke

By Tony Obiechina, Abuja 
Following the outbreak of the coronavirus pandemic, and the crashing of crude oil price to as low as $22 per barrel in the international market, the federal government had pegged the oil price at $30 for the 2020 Budget.
But a foremost economist and senior lecturer at the Nasarawa State University, Keffi, Prof Uche Uwaleke has frowned at Nigeria’s position describing it as unrealistic.
He said in statement made available to Prompt News in Abuja, that with crashing of crude oil, it would be “unrealistic to stick to $30 dollar per barrel in view of unfavourable developments in the international crude oil market and against the backdrop of the forecast by the International Energy Agency of low oil demand through 2020”. 
The former Imo State Finance Commissioner noted argued that  when major oil consumer nations such as the US, China and India eventually reopen their economies, the quantum of accumulated unsold inventory will not allow prices to recover appreciably. 
He said, “In any case, I expect that a lot of traders, leveraging derivatives, must have locked-in low prices for future delivery of crude oil at least for the next few months in view of the uncertainties occasioned by COVID’19. By implication, in the event of an unlikely oil price spike, oil revenue may  not be significantly impacted. 
“So, the haircut in oil price benchmark stands to reason. I had also expected a further slash in oil production benchmark from 1.7 million barrels per day for the same reason I mentioned earlier. 
“Given the current supply glut, only a deep cut in output by OPEC and OPEC+ will save the day. The fact is that a Budget is supposed to be guided by the principle of conservatism which means those saddled with the responsibility of its preparation are expected to err  on the side of caution. 
“If at the end of the day, oil price appreciates above the budget reference price, then it presents an opportunity to build buffer or earmark any excess for critical infrastructure. 
“Having noted that, the implication of this development is grave not only for the federal government but also for State governments whose budget assumptions are also predicated on that of the former. 
“It calls for cost cutting measures and prioritization of spending. Borrowing to finance the deficit should only be made after a thorough cost and benefit analysis. 
“Because oil revenue drives the economy even though it constitutes just roughly 10% of GDP, the economic headwinds of 2020 occasioned by the twin shocks of oil price crash and the Coronavirus pandemic will combine to depress economic activities in Nigeria. 
“So, the projection of a 3.4% negative GDP growth rate should not surprise anyone. Faced with this reality, the major concern of the government should be to reduce the recession cycle and minimize its knock-on effect on the ordinary citizen through the right spending targeting Health, Education, power and roads while the CBN continues to focus on and possibly scale up its interventions in Agriculture and small and medium enterprises”.
In announcing the reduction of crude oil price from $57 per barrel to $30, the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed said “this means that we are going to get so much less revenue, almost 45 percent loss as we planned”.
She also announced the reduction of N1.5 trillion from the 2020 budget of N10. 59 trillion and a ban on recruitment of workers into  Ministries, Departments and Agencies.