How declining oil prices could affect Nigeria’s 2019 budget

As global crude oil prices continue to decline, there are growing concerns that the development could negatively affect the Nigerian Government’s economic plans; specifically its medium-term expenditure framework and other projections for the coming year.

Already, the appropriation bill, which has long been sent to the Senate for approval, is now said to be facing a likely review in efforts to accommodate the current situation.

This has become imperative as the continuous declines in crude oil prices is said to have led to a reduction in Nigeria’s Excess Crude Account, (ECA). This, therefore, makes it impossible to implement the country’s budget in view of the growing volatility in the oil market.

Aspects of Nigeria’s ambitious budget that could be affected the most

Unless there is a reversal in the downward spiral of oil prices, some of the key aspects of Nigeria’s budget that may suffer include capital expenditure and the much-touted Economic Reform and Growth Plan (ERGP) of the President Muhammadu Buhari led administration.

The budget isn’t the only thing being affected

Nigeria’s budget is definitely not the only aspect of the economy that is being affected by the drastic drop in our prices. And perhaps this not surprising; after all the Nigerian economy is almost entirely dependent on oil.

A recent Nairametrics article analysed that some investment portfolios could be very much affected should the declines persist. In the same vein, a different article examined how the situation could affect the financial performance of various Nigerian banks such as Zenith Bank Plc, United Bank for Africa (UBA), and Fidelity Bank Plc.

These banks have huge exposure to the oil industry in Nigeria. The continuous reduction in prices would, therefore, worsen the banks’ Non-Performing Loans because their clients (i.e., oil companies) will not be able to service their loans.

In the meantime, oil prices are below Nigeria’s budget benchmark

Although global oil benchmark, Brent Crude, has managed to climb up to $60 per barrel as at this morning, it is still below what is expected to ensure a successful implementation of the budget.

The commodity’s price had fallen below $60 per barrel, down by as much as 20%; the lowest since November 2017.

Member states of the Organisation of Petroleum Exporting Countries have been meeting to deliberate on ways to address the situation.


Source: Nairametrics

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Author: see naija

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