It’s no more news that President Goodluck Jonathan has laid before the joint sitting of the National Assembly (NASS), the 2013 Appropriation Bill (the 2013 Draft budget). The timing was commendable being a massive 3 months before the end of the year, thereby giving enough time for the Assembly for thorough review and deliberation.
However, one issue raising dust since the laying, is the oil price benchmark used in the preparation of the bill. The executive, in their wisdom has chosen $75 as the basis of computation; while the NASS through the Joint House Committee on Finance, Legislative Budget and Research, National Planning and Economic Development kept maintaining that the benchmark be upped to $80 per barrel. The oil price benchmarking becomes necessary since over 80% of Nigeria’s projected revenue comes from oil, of course the blackgold runs our economy.
The executive, through the co-ordinating minister of the economy, had expressed satisfaction with how the benchmark price was derived, and its sufficiency in running the marginal budget bar the need to borrow to fund the deficits. They stressed the importance of prudence in estimating the benchmark noting the possible inflationary gain, and economic collapse if the global economy nosedive, should they raise the benchmark upwards.
The Committee maintains that there’s a need to increase the benchmark so as to free some funds to finance our domestic debts, with the indirect result of banks’ monies being really used in financing the private sector where they (banks) should be operating. The effort, in the Committee’s belief, will be moving the budget to at least an equilibrium zone if not surplus axis.
There has been several public figures and bodies speaking for or against the $75 benchmark. Among those speaking for are Mallam Sanusi Lamido (the CBN Governor), that’s not unexpected anyway; and the Nigerian Economic Summit Group (NESG) as stressed in this paper. In the words of SLS:
“Benchmark does not necessarily give you more revenue. You can increase it to $100 if you like, but does that bring the money? What is important is to increase crude oil production and sales. The $75 is even on a high side relative to other countries.“
And the position of “other countries” having lower benchmarks resonates around virtually all those figures supporting the executive in the budget base.
However, the question, in my opinion, has always been what the “other countries” have been using their oil profits for. The last year budget was based on $72 (and that’s after some wrist fights too), and we are all aware how much oil was sold throughout the year. The profits were supposed to be warehoused in the Excess Crude Account (ECA), and be used to “cushion the economy in the rainy days”. But it’s all in the media how the fund was/is being shared by the 3 tiers of government; the citizens never feel the effect of such receipts. It rather creates avenue for easy looting, and we all know the destinations of such loots anyway (Check the post “Looting Africa Leaders Are So Foolish“). Confirming our fears, the state governors just recently jointly demanded $1bn to be given them from the ECA….to do what?….”to enable them to meet their contractual obligations in their various states.”
It’s on the basis of the executive’s apparent chop-I-chop management of the ECA and funds of such nature that I support the upping of the benchmark. And I want to believe the same thought was running through the NASS members while rejecting the $75; it really leaves much to be ‘managed’.
It’s good for enterprises, and even governments, to be reasonably geared in their financial management though, but source(s) of repayment need to be reasonably identified. In Nigeria’s case, repayments will be coming from future revenue from oil, and whatever; when the “savings” of today, plus the possible interest if they are invested, could be used for same. We are very quick to assess loans to fund some projects (whether elephant or tortoise), when part of the savings could have been useful, going by the cost of funds. For example the proposed bill has a deficit of 2.17% as percentage of GDP, but absolute figure amounts to just over N1trillion ($6.5bn); however the deficit financing plan is to borrow N727bn ($4.54bn) and from the ECA, N225bn ($1.41bn – assuming $15 profit per barrel over the benchmark, this is like savings from 93m barrels of oil which is just a month oil’s production going by the projected 3mbpd). Why immerse ourselves in debts when 11 months’ savings will be lying down somewhere to be ‘managed’?
It is therefore necessary for the executive to appreciate this view of the legislature, review the benchmark, and hence allow speedy discussion and passing of the Appropriation Bill. We’ll commend them again for bringing out the document in arguably a record time, however, let them do the needful.
Share your insights on the 2013 Federal budget and the benchmark price by dropping your comments below.