2016 budget highlights decline in oil sector

30 December 2015, Lagos – Barring any further adjustments in the key parameters in the 2016 Appropriation Bill, next year’s budget will unarguably pass as one with the lowest projections for daily oil production as well as the oil benchmark price in five years.
crude-oil-pipe-702x336-436x336In the 2016 Appropriation Bill presented by President Muhammadu Buhari to a joint session of the National Assembly last week, next year’s budget was predicated on an oil output of 2.2 million barrels per day (mbpd) and a benchmark price of $38 per barrel.
This is slightly lower than the 2015 budget, which had a 2.28mbpd production target and a benchmark price of $53 per barrel.
The 2015 budget was also predicated on a deficit of N1.04 trillion as against N2.22 trillion for 2016.
In the 2014 budget, the federal government under former President Goodluck Jonathan predicated the budget on oil production of 2.38mbpd, the 2013 budget was anchored on daily oil production of 2.53mbpd, while that of 2012 was 2.48mbpd.
This makes the 2016 budget the lowest not only in terms of oil output but also the least in terms of the benchmark price.
Other than the 2015 and 2016 budgets, the benchmark price never went below $73 per barrel in the five-year period (2012- 2016) under review, reflecting the high oil price environment of over $100 in 2012, 2013 and 2014.
When the Jonathan administration cut down the oil production target from 2.53mbpd in the 2013 budget to 2.38mbpd in 2014, oil theft in the Niger Delta was at its peak.
Although reports indicate that the spate of theft has declined, other factors which in recent years accounted for reduced production included pipelines vandalism as well as intermittent production shut-ins by the oil majors for repairs and maintenance at different terminals.
The N6.08 trillion 2016 budget proposal with a revenue projection of N3.86 and a deficit of N2.22 trillion, translating to 2.16 per cent of Nigeria’s Gross Domestic Product (GDP), will catapult the nation’s overall debt as a per cent of GDP to 14 per cent.
The government intends to finance the deficit through a combination of domestic borrowings of N984 billion and foreign borrowings of N900 billion, totalling N1.84 trillion.
Over the medium term, there is a plan to increase revenues and reduce overheads with a view to driving down the fiscal deficit to 1.3 per cent of GDP by 2018.
Oil related revenue is expected to contribute N820 billion while non-oil revenues, comprising company income tax (CIT), value added tax (VAT), customs and excise duties, and Federation Account levies, will contribute N1.45 trillion.

 

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