The federal government yesterday raised a committee to cut the size of the N10.59 trillion 2020 budget, which is under threat of underfunding owing to the volatility in global oil prices occasioned by the impacts of the outbreak of COVID-19 and a price war triggered by Saudi Arabia and Russia.
The committee, which was constituted by President Muhammadu Buhari, has as members the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed; the Minister of State for Petroleum Resources, Chief Timipre Sylva; the Governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, and the Group Managing Director of the Nigeria National Petroleum Corporation (NNPC), Malam Mele Kyari.
Aside the task of reducing the size of the budget, the committee is also saddled with the responsibility of reducing the oil benchmark from the approved $57 per barrel to reflect the current realities.
By yesterday, the price of London Brent was $35 per barrel while the price of New York Light Brent was $32 per barrel, thus underscoring a notable fall from $49 per barrel global price last week.
Emefiele yesterday in Abuja said the economic impact of the coronavirus was already becoming severe with the declining global oil price, which had crashed to about $35 per barrel, dampened consumer confidence as well as declined private consumption and global demand slowdown.
Owing to these developments, analysts have predicted an imminent devaluation of the naira.
However, reviewing the situation yesterday, Managing Director, Financial Derivative Council and a member of Buhari’s Economic Advisory Council, Mr. Bismarck Rewane, said the country should now face the reality because it knew what to do but was wasting time.
Buhari raised the committee comprising the key managers of the country’s economic resources to undertake a quick study of the impact of coronavirus on the Nigerian economy.
The committee is expected to bear in mind the fall in the global price of crude oil which is the major source of funding for the budget and come up with revised projections.
Answering questions from State House reporters after a meeting with the president, Ahmed said the committee was expected to submit its report to the president on its eventual decision the latest tomorrow.
She explained that the committee would determine a new oil benchmark, the size of a new budget and subsequently make such new decisions public.
She said: “We just met with the president to discuss the matter of the impact of the coronavirus on our economy and Mr. President has formed us into a committee, with the Minister of State, Petroleum Resources, the Central Bank Governor, the GMD NNPC and I as members.
“Our mandate is to make a quick assessment of the impact of this coronavirus on the economy, especially as it affects the crude oil price. We will be writing a report and brief Mr. President tomorrow or Wednesday morning and after that, we’ll also have more substantial information for the press.
“But it is very clear that we will have to revisit the crude oil benchmark price that we have of $57 per barrel; we have to revisit it and lower the price. Where it will be lowered is the subject of the work of this committee.
“What the impact will be on that is that there will be reduced revenue to fund the budget and it will mean cutting the size of the budget. The quantum of the cut is what we are supposed to assess as a committee.
“This is just an initial update to inform you on the directives that we have and subsequently we will be sending a report to the president, after which we will be briefing the press on the actions that government will be taking.”
Buhari, on December 17, 2019, had signed the N10.59 trillion budget, made up of N4.84 trillion recurrent expenditure, N2.46 trillion capital expenditure, N2.72 trillion for debt servicing, fiscal deficit of N2.28 trillion and deficit to Gross Domestic Product (GDP) ratio of 1.52 per cent.
The Appropriation Act was also predicated on certain projections, including a crude oil production volume of 2.18 million barrel per day, oil benchmark of $57, N305/$ exchange rate, the GDP growth rate of 2.93 per cent, the inflation rate of 10.81 per cent and statutory transfer of N556.7 billion
Also answering questions yesterday on whether Nigeria would engage Russia on the controversies involving the Organisation of Petroleum Exporting Countries (OPEC), Sylva said Nigeria lacked the power to solely undertake such a move.
According to him, the reality of the current situation will soon dawn on everyone and both OPEC and OPEC+ may meet, adding that meaningful engagement is also expected to take place between Russia and Saudi Arabia.
