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NASS Committee agree optimistic $77.5 oil benchmark for 2014 budget


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Nigeria

IMAGE: National Assembly »

Dec.18.2013

 

After weeks of bickering and disagreements, the Conference Committee of the National Assembly yesterday agreed on $77.5 as the benchmark crude price for the 2014 budget and said the lawmakers were ready to receive President Goodluck Jonathan after today.

The executive had earlier sent a budget document hinged on an oil price of $74 but later amended it to $76.5, an amount the Senate adopted. But the House of Representatives raised this to $79, necessitating an agreement to be reached.

Analysts said last night that the new benchmark if agreed to by both parties, would enhance the status of the Excess Crude Account (ECA) as oil price has been hovering between $100-110/barrel especially if the current theft and vandalisation of the nation’s pipelines are curtailed by government.

Oil revenues account for about 70 percent of Nigeria’s $32 billion 2013 Federal budget, and are the largest source of foreign exchange at 90 percent.

The excess crude account (ECA) is down 60 percent this year to $3.3 billion in November from $9.2 billion in January.

The ECA and SWF balance of $4.6 billion are equivalent to a mere 1.7 percent of GDP, leaving the nation with fewer options to stimulate the economy if oil prices fall sharply.

The benchmark now being proposed by the National Assembly may however still be too optimistic, in view of the potential pullback in oil prices in 2014 on possible resumption of Iranian oil exports and the start of the United States Fed taper of stimulus, which may cause a retreat in oil prices.

Analysts say Nigeria needs oil prices to be above the $100 per barrel mark, and for dollar reserves to be above $30 billion to maintain macro-economic stability.

“At 1.1 percent of GDP vs. 65 percent/GDP among major oil exporters, the level of fiscal savings in Nigeria is critically low, and running such a fiscal stance has only been possible because the oil price remained elevated in recent years,” said Samir Gadio an emerging markets strategist at Standard Bank in London, in a note released December 16.

“Any prolonged oil price pressure in the long run will rapidly make Nigeria’s overall fiscal position unsustainable and precipitate a macroeconomic systemic shock.”

The decision by the National Assembly is now expected to pave the way for the eventual presentation and passage of the budget early next year.

The lawmakers have also failed to pass the Petroleum Industry Bill (P.I.B), which has the potential to reform the oil industry as well as earn more revenues for the Government.

Last week, the Conference Committee set up by both chambers to harmonise positions, failed to reach an agreement and adjourned indefinitely.

But the leadership of both chambers led by the Senate President, David Mark, however met Monday night and agreed on $77.5 as a compromise benchmark.

By: TUNJI OLAWUNI

Article Credit: BusinessDay Newspapper

Updated 5 Years ago
 

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