2016 N6trn budget: The lowest oil benchmark in many years & the economic recession fear

*Nigeria map camouflaged in economic activities.

*Nigeria map camouflaged in economic activities.

*Looming trouble as crude price slips below target

13 December 2015, Lagos – The proposal of N6 trillion for Budget 2016 by the Federal Government has generated divergent views among economic experts in the country. While some economists called on government to embark on efficient taxation system to enhance more revenue generation for the economy, others said N6trillion proposal for expenditure in 2016 would not solve the crisis facing Nigeria’s economy.

The National President, Constance Shareholders Association of Nigeria, Mr. Shehu Mallam Mikail, explained that the proposal of N6trillion was based on government’s estimation but would not prevent Nigeria’s economy from sliding into a recession, as previously predicted, unless government acts urgently to strengthen the financial system, in order to curtail misappropriation of public funds allocated for developmental projects.

He said, “Proposing N6 trillion for budget 2016 is a good attempt, but the reality on ground is that, such proposal would not turn the economy around for greater outputs maximisation with the current state of infrastructure and over-dependence on revenue from crude oil to run the entire economy. We must be realistic about the state of our economy and what we should do to move the country forward. With declining oil prices and mono-culture economic practice that we are running now, nothing tangible would be achieved with N6trillion.”

He added, “The exchange rate now is N252 per Dollar. So, high exchange rate is another issue we must take cognisance of. The Naira is depreciating, meaning government must take a lot of things into consideration in managing the economy at this stage”.

On the way forward, he said, “For the economy to record tangible growth, government must embark on appropriate diversification. They should develop our infrastructure to maintain the diversification process. Also, government should give people proper orientation on the type of diversification they want to do. Creating jobs for the citizens should be given needed attention. The financial system, I mentioned earlier must be strengthened to ensure prudent utilisation of public funds. Without these things in place, no amount of money would keep the economy on the path of sustainable growth”.

Analysis of the budget
The total budget expenditure proposed for 2016 is N6trillion. The appropriation bill is predicated on the oil benchmark of $38 per barrel, and with crude oil production of 2.2 million barrel per day. 30 per cent of the entire budget is allocated for capital expenditure for a whole year.

Comparative analysis of the budget:
With N6 trillion allocation, there is an increase of about N1trillion in the proposed budget for 2016, compared to the budget of 2015. In 2015, government approved N5 trillion budget for that year. So, 2016 is the first time government is proposing up to N6trillion as appropriation bill for a year. The budget bench mark for 2015 was $53, with crude oil production of 2.28milion barrel per day, while that of 2016 is $38, which appears to be the lowest in the last few years.

Statistical analysis from 2011-2016
2011- N4.22 trillion, with oil benchmark of $62 per barrel

2012- N4.74 trillion, with benchmark of $67 per barrel

2013- N4.92 trillion, with oil benchmark of $79 per barrel

2014- N4.6 trillion, with benchmark of $76 per barrel

2015- N5 trillion, with benchmark of $53 per barrel

2016- N6trillion, with a benchmark of $38 per barrel

Government’s position
Speaking after a meeting of the Federal Executive Council (FEC), the Minister of National Planning and Budget, Mr. Udoma Udo Udoma, said, “In view of the current economic realities, the FEC predicated the budget on $38 oil benchmark for the Medium Term Expenditure Framework,(MTEF).”

“We are working with 2.2 million barrels a day production. We believe it is achievable, because with the possible passage of the Petroleum Industry Bill (PIB), which we are working to achieve, we believe the production figure is modest and we should be able to produce something higher than that. We are looking at a budget that will be N1 trillion more than last year. So, we are looking at a budget of about N6 trillion. Last year’s budget, including the supplementary, was about N5 trillion. All the increases will be spent on capital, because there is the need to increase the capital because of the infrastructure issues that we have to address.”

Oil dips below $37 as OPEC pumps most in three years
Meanwhile, oil price fell below $37 a barrel on Thursday, after new data showed OPEC is still pumping like there is no tomorrow.

The mighty oil cartel produced 31.7 million barrels a day in November, its latest monthly report shows. That is the highest output in over three years and 1.7 million barrels a day over its former production ceiling.

OPEC production rose by 230,000 barrels a day last month, according to secondary sources that track OPEC’s production levels.

The news pushed oil prices back below $37 a barrel for the second time this week. Last time oil was cheaper than that was in the depths of the Great Recession in February 2009. It reached a peak of nearly $108 per barrel in June 2014.

OPEC failed to agree on an official output quota last week, leaving production near record highs despite the massive global glut that is keeping oil prices low.
*Udeme Clement – Vanguard

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