Oil, forex budget benchmark 2016

29 December 2015, Lagos – Muhammadu Buhari might have made his most important move since assuming office as elected president seven months ago, releasing the 2016 budget, which is expected to actualise his democracy dividend to the electorate.

*US dollars.

*US dollars.

Whether this move would be impactful or marginal to the living conditions of average Nigerians depends on the factors surrounding the budgetary provisions.

For one, certain provisions of the budget already indicated the intentions of the regime to improve the living standard of the citizenry despite adverse economic circumstances.

For instance, inclusive in the budget is a N200 billion Special Intervention Programmes to address vulnerable social sectors as well as the implementation of the N5,000 unemployment allowance.

Also the massive increase in capital expenditure and huge allocations to key infrastructure sectors attest to the intent to stimulate the stressed economy and improve living standards of Nigerians. However, other provisions of the budget also pointed to major threats on the path to realization of the budget. Key among them are the benchmarks for oil revenue and the exchange rate.

Incidentally the two are by far the most far reaching determinants of the revenue projections, the basis for the execution of the laudable goals.

The oil price benchmark at USD38 per barrel appears not only inconsistent with prudential financial planning but rather too presumptious on a factor that is totally outside Nigeria’s control.  It is even more worrisome that the benchmark came at a time the price has already plummeted.

The tradition and in consonance with erring on the side of caution by dropping the benchmark significantly below current market price where surplus is not lost but invested in both reserves and the Nigerian Sovereign Investment Fund as provided by the law.

Similar to the oil benchmark was the exchange rate benchmark fixed at N198/ USD1.0, the ruling rate at the Central Bank of Nigeria, CBN, regulated market.

Everybody in Nigeria and international observers know how unrealistic this rate has been in the past eight months. Even the President himself has admitted in his budget speech that the market needs tweaking.

How then could the budget be realistically based on that rate?

Though it may appear as official devaluation if the President had based the budget on any rate lower than the official rate, we would have advised that a caveat be placed to the effect that a rate change during the life of the budget would be reflected accordingly. This caveat, we believe, would have starved off the toga of unseriousness the 2016 budget appears to be carrying now.

Benchmarks are not cast in iron, yet a realistic benchmark, especially such as we are discussing here should have been the way to go.



  • Vanguard
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