Nigeria At Risk Over Falling Oil Price : FG

ABUJA: The Federal Government, yesterday,
raised an alarm over the decline in the
global crude oil prices, saying that it is
already putting in place stricter measures to
cushion the effect of the drop on the
Nigerian economy.
*Oil Vandals
“Nigeria has two to three months of rainy
day savings to cushion it while contingencies
are put in place should world oil prices
continue to fall,” Ngozi Okonjo-Iweala, Co-
ordinating Minister for Economy told
theFinancial Times.
Okonjo-Iweala disclosed that should oil price
dip below $78, the country would have to
draw down on the Excess Crude Account
(ECA).
She said, “Our intention is not to run in
there and raid it, but even if prices continue
to go down we can survive sufficiently for
two to three months. That is the time
needed to get other measures in place. What
you don’t want is a hard landing.”
“Our buffers are slimmer this time,” Okonjo-
Iweala acknowledged, adding that there is
about $4bn in the ECA at present, $2bn
short of what the International Monetary
Fund had recommended.
She further stated that the country needs
to ramp up our non oil revenues on the fiscal
side, adding that global consulting firm,
McKinsey, has been engaged to carry out an
extensive review of revenue services in order
to identify potential gains.
Okonjo-Iweala added that she was
encouraged by an exhaustive data review,
which saw Nigeria’s economy overtake South
Africa’s as the continent’s largest, showing
that the economy had diversified to a much
greater extent than previously thought.
She said, “In an oil country you can never
feel at ease exactly. But I feel we can master
this situation because we have a diverse
base.
“We will have to look very hard at recurrent
expenditure, and identify overlapping
agencies. When the price is heading down
everyone sees the necessity but that doesn’t
stop them hating you.
Okonjo-Iweala agreed, however, that lower
oil prices would provide a stronger incentive
to government to rein in oil theft, which has
cost billions of dollars a year, and help to
drive through stalled oil sector legislation to
stimulate production.
“That would enable us to pick up quantity to
help us cushion on the price side,” she said.
The Federal Government, which depends on
oil typically for about 80 per cent of
revenues, is assuming an oil price of $78 per
barrel for its 2015 budget, up from $77.5
per barrel in 2013 and precariously close to
recent world prices.
Nigeria was in a much stronger position last
time the world price of oil tumbled, with
about $22bn squirrelled away in the ECA.
Those funds helped the country weather the
2008 global financial crisis with economic
output relatively unscathed.
But during recent boom years the government
has persistently used the ECA, dividing out
the proceeds among the 36 states in the
federation, which are constitutionally
entitled to their share.
Nigeria also holds foreign reserves equivalent
to $39″billion. These have come under recent
pressure as the central bank has stepped in
to prop up the naira, but still cover nine
months worth of imports.
Nigeria’s ratio of non-oil tax revenues to
GDP, at 4.5 per cent, is among the lowest
on the continent. McKinsey helped South
Africa broaden its tax base to the tune of
about $3bn and Okonjo-Iweala believed
similar gains were possible over the longer
term in Nigeria.
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