Nigeria: Govt not sure of oil price recovery

Dr Ngozi Okonjo Iweala

Dr Ngozi Okonjo Iweala

*Says price to remain low for foreseeable future

Oscarline Onwuemenyi,
with agency reports

21 April 2015, Sweetcrude, Abuja – The Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala has said global oil prices are likely to stay low for a long time after falling more than 40 percent in the past year.

The Minister warned that oil prices, currently at around $60 a barrel, probably won’t recover to the 2011-2013 level of more than $100 a barrel.

Okonjo-Iweala, who was speaking on a panel discussion Sunday in Washington near the end of the International Monetary Fund’s spring meetings, said, “You forecast at your own risk, but it seems to me that we should be regarding this as a permanent shock. We should prepare our economies for that eventuality.”

The Minister’s comments highlight a growing worry among oil-producing nations ahead of an important meeting of the Organization of Petroleum Exporting Countries in June in Vienna. Brent crude has fallen about 42 percent over the past year, though it has increased 11 percent so far this year.

The OPEC meeting is likely to be tense after Saudi Arabia, the world’s largest oil exporter, boosted production to the highest in three decades in March, with a surge equal to half the daily output of the Bakken formation in North Dakota.

OPEC nations such as Nigeria are suffering more than Saudi Arabia and other Gulf countries the drop in oil prices because they built smaller foreign-exchange reserves.

Nigeria has responded to the oil rout by cutting expenditures and with revenue-raising measures including a tax on luxury items such as yachts. Longer term, the government seeks to diversify the economy “beyond oil,” Okonjo-Iweala said.

Asked where she expected prices to be in 12 months, Okonjo-Iweala said $60 to $70 a barrel.

At the height of the global slump in oil prices a few months ago, Okonjo-Iweala had called on Nigerians not to panic over the falling oil prices in the international market, reassuring that the nation’s financial team has put in place strategies to manage oil prices as low as $60 per barrel.

She explained that the Federal Government would not be stampeded into taking measures that would further aggravate the challenges the economy is going through, even as she insisted that the recent drop in oil price did not come as a surprise and that what was needed was a systematic and focused approach to overcome the development.

According to her, “Panic is not a strategy. We are managing the situation to keep the economy on a stable sustainable course and we will not listen to those who want us to throw up our hands in despair and give up.”

She added that, “Our scenario based approach to managing the impact of the oil price drop is proactive and comprehensive. Even if the price drops to 60 dollars we are ready.”

Okonjo-Iweala stated that the Federal Government would adopt a systematic and focused fiscal approach comprising both revenue and expenditure effort.

She explained that, “As a central part of our strategy, we have revised our oil price expectations over the short to medium term! We have lowered our benchmark oil price assumption to $73 per barrel after some careful analysis of the possible future direction of oil price as well as the soft floor price for shale oil, which is estimated at about $75 per barrel. But let me clearly state that we are not taking a point-estimate position as regards the future price of oil.

“We fully recognize that oil prices may fall lower or even rebound. Prices could fall to $70 a barrel, $65 or even $60. Prices could also rebound to $75 – $85 a barrel. What we did was to work within a range of $60 – $85 thought possible by analysts, put a package of measures around an estimate at the midpoint of that range, that is, $73, and then build additional measures for scenarios at $70, $65 and $60 a barrel. The best way to manage uncertainty is to take a scenario-based approach to be ready for alternatives that may occur,” she added.

The Minister explained that part of the measures to shore up the country’s will include blocking all leakages and loopholes in government finances, capturing a large percentage of Small and Medium Enterprises (SMEs) in the tax register and increase the audit of companies from its present state.

Other measures to increase government revenue include surcharge on Luxury goods, compelling Government Agencies to comply with the country’s remittance laws and the review of waivers and levies granted companies. “As part of renewed focus on increasing tax revenues to mitigate the impact of the fall in oil prices, the revenue target for the next three years is three billion dollars. The FIRS working with Mckinsey has already made progress in reaching the target of N75 billion over and above the regular collection target.”

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