Crashing oil prices: Nigeria introduces austerity measures

SRILANKA-ECONOMY-WORLDBANK*Scales down 2015 oil benchmark from $78/b to $73/b

17 November 2014, Abuja — The Federal Government, yesterday, introduced some austerity measures and scaled down the crude oil bench mark for the 2015 budget.

In a bid to insulate the economy from falling crude oil prices the federal government announced far-reaching policy measures to deal with the crashing crude oil prices, cutting 2015 oil benchmark from $78 to $73 per barrel. Crude oil prices dropped to $77.76 per barrel, some cents below the $78 earlier proposed to the National Assembly as bench mark for the 2015 budget.

The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala told journalists in Abuja that the decision to cut revenue projection was part of measures designed to maintain economic stability, boost non-oil revenues further, plug loopholes and waste, as well as cut unnecessary expenditures in order to cope with the situation.

Keeping to her earlier warning that the government will soon introduce measures to protect the economy she said: “As part of the response to falling oil prices, the Medium Term Expenditure Framework (MTEF) and the Budget 2015 proposal to the National Assembly have been revised. Government is now proposing a benchmark of $73 per barrel to the National Assembly compared to the earlier proposed benchmark of $78.

“Given the nature of the oil market, we needed to see the extent and trend of the oil price in order to take the right measures. Panic is not a strategy. It’s important that our strategies are based on facts and a clear understanding of both the strengths of the economy and the challenges posed by the drop in oil prices which is currently at $79 for our premium Bonny Light Crude.

“The drop in oil prices is a serious challenge which we must confront as a country. We must be prepared to make sacrifices where necessary. But we should also not forget that we retain some important advantages such as a broad economic base driven by the private sector and anchored on sound policies.”

FG determined to strengthen economy
Dr. Okonjo-Iweala assured, however, that the federal government would continue to fund infrastructure, job creation, agriculture and human capital development, especially the health and education sectors, as part of the Goodluck Jonathan administration’s determination to strengthen the economy to positively affect the poor.

“To show how serious government is about job creation, President Goodluck Jonathan”, she disclosed, “will tomorrow, (today) November 17 launch the 4th edition of YouWin to support another 1,500 entrepreneurs along with a private equity fund for entrepreneurs.

“Our strategy is to continue to strengthen the sectors that drive growth such as infrastructure, agriculture and housing while reducing waste with a renewed focus on prudence.”According to her, the policy was scenario-based and that additional measures would be introduced if oil prices declined further.

The minister said that the basket of measures with growth which has remained above six per cent, reassure investors and keep the economy on a stable course through the crisis.

Curtailing wastage
According to Dr. Okonjo-Iweala, there would be no more foreign travels by civil servants unless for purposes that could be fully defended as absolutely necessary.

In addition, foreign training programmes would be stopped and all trainings done in-country.
The exception, she said, would be to secure foreign sponsorship for such travels and training abroad.

The Minister added that the federal government would work to eliminate duplication among the functions of the Ministries, Departments and Agencies, MDAs, by working on the Steve Orosanye Report.

She, however, observed that since the MDAs to be re-aligned were created by law the National Assembly would be required to repeal such laws before any administrative step could be taken.

Luxury Goods Tax
Part of the immediate steps to cushion the fall in oil revenue, the minister said, was to significantly increase non-oil revenue in the country, as she announced an aggressive tax administration in which, private jets, yachts, Champagne and a list of others to be announced would be taxed.

The minister said that the idea of Luxury Goods Tax was not to stop wealthy members of the Nigerian public from enjoying their wealth but to create an avenue for them to share with those at the lower levels of the ladder.

According to the minister, the issue of capital flight was now engaging the attention of the administration, just like many other African nations, saying that a study has been commissioned to determine the activities of corporate citizens and other individuals who were evading taxes as well as those involved in capital flight.

She added that monetary measures should also be expected in the efforts to ensure a stable Nigerian economy, despite the falling oil prices.

Okonjo-Iweala dismissed suggestions of printing Naira notes just to keep spending, as according to her, that would be the worst that could happen to an economy, especially among the poor, adding, “spiral inflation is the worst enemy of the poor.

“Printing money without adequate revenue support will lead to serious consequences for the country. It will spur inflation as the experiences of Germany in the early part of the last century and more recently, Argentina and Zimbabwe demonstrate. This prescription will victimize the poor and middle class that it is supposedly protecting,” she said.
*Emma Ujah – Vanguard

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