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Fresh trouble as crude oil prices’ fall continues

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• AMCON’s N5.6tr obligation under threat • Govt votes N500b for social welfare
• Cuts funds for amnesty programme to N20b • Rules out salary increase<strong

DESPITE the Federal Government’s using a crude oil price benchmark of N38 for its 2016 proposed budget, an economic crisis looms. This is because by yesterday, the oil price continued to plummet, falling below $37 per barrel and international Brent crashing to below $40 for the first time since early 2009. The prices may fall further.

Lamenting the crash in oil price, Asset Management Company of Nigeria (AMCON) said the decline had far-reaching implications in its efforts to meet obligations

Besides, about N500 billion has been earmarked for social welfare intervention programmes in next year’s fiscal plan. Potential beneficiaries of the welfare programme, however, would have to present evidence of children’s enrolment in school and of immunisation.

Already, global stock markets fell sharply yesterday as oil prices remained significantly low as the Organisation of Petroleum Exporting Countries (OPEC) decided to leave production unchanged.

Economic experts, who spoke with The Guardian yesterday, believed that the government had come to terms with the reality of the plummeting crude oil prices and had decided to align with its resources in the 2016 budget proposal.
Speaking with The Guardian yesterday, Director, Centre for Petroleum Energy Economics and Law, University of Ibadan, Prof. Adeola Adenikinju, said that the $38 per barrel was realistic, describing it as a conservative approach by the government.

According to him: “It will encourage the government to cut its coat according to its cloth. However, if the government experiences an upside in the global price of oil, then it can always submit a supplementary appropriation bill to the National Assembly.”

The Managing Director of AMCON, Ahmed Kuru, who noted that it had about N5.6 trillion debt to honour in the next 10 years, said falling oil prices reduced government’s ability to meet its own commitment.

“The price of crude oil below $40 per barrel impacts the government’s ability to honor its obligations to those that are owing us. The impairment of oil assets we took over is another problem. Real-estate assets are challenged as the economy is going down.

“There are quite a lot of tank farms in Apapa. That asset is a specialised asset.  Whoever that will indicate interest will do so based on cash flow projection, expecting that five years or 10 years down the line, it would have been able to pay back.

“To dispose them is a big challenge and disposing them at the prices we got them is also another challenge. Some of those assets were revalued and revaluation is most times based on discretion”, Kuru said.

Transmitting the 2016, 2017 and 2018 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) ‎yesterday, President Muhammadu Buhari disclosed that “the Federal Government will collaborate with state governments to institute well-structured social welfare intervention programmes such as: school feeding programme initiatives, conditional cash transfer to the most vulnerable, and post-NYSC grant.”

In the MTEF /FSP document which was presented to senators at the commencement of session yesterday, the president said:”N500 billion has been provided in 2016 Budget as social investments for these programmes. These interventions will start as a pilot scheme and work towards securing the support donor agencies and our development partners in order to minimise potential risks.”

The document further stated:”A phased social welfare programme will be created to cater for a larger population of the poorest and most vulnerable Nigerians upon the evidence of children’s enrolment in school and evidence of immunisation”

The document provides N20 billion for the Presidential Amnesty Programme.

This is in sharp contrast with the figure of N47.39 billion provided for the same programme in 2015. It also announced that the Federal Government will prune down its size.

In a sub-head tagged “size of government”, the MTEF stated:”Government will in the near-to-medium term, continue to prune the size of government and its MDAs to more efficient levels without compromising efficiency and effectiveness. Over the medium term however, government will revisit the need to rationalise the agencies of government and strategically implement relevant provisions.”

The Federal Government has also announced its intention not to increase salaries within the period covered by the MTEF. “The mounting number of claims for increases in salaries and allowances including pensions and other benefits will need to be curtailed as part of the efforts at re-balancing the structure of government spending” the document stated.


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6 Comments
  • Ralf

    I no go vex until d price of crude oil falls to $1 per barrel..Na then i go….

  • Maigari

    Good that at last someone ‘big enough’ has woken up to the reality of the Nigerian economic dire straights. Perhaps moreimportant is to ask and find out how and why we fell to this level first.
    The government has had a fair and good-sounding economic programmes but that was basically only on the paper the programmes were written out on. For instance there is absolutely no reason for Nigeria to be exposed to so much debt after the NOI inspired debt pay-off and what not. Almost immediately thereafter, there was a cacophony of noise-economists who painted Nigeria as “under-borrowed” whatever that means. Abive that was the profligate neglect of obligations by the governments at all levels. Foe example the 2004 Pension reform Act and the subsequent 2015 Amendment pained a fairly clear picture of t he Fund but almost immediately the government failed woefully yo fulfil her own obligations by failing or refusing to fund her own obligations for those woth service earlier than the June, 2004 take-off date. After the 2015 Amendment, the executive failed to make payments to the Fund exacerbating an already precarious weakly financial position of the Fund,
    The continuous fall in oil [rices only pained out the stark reality of the failures and financial mismanagement that Nigeria and Nigerians today are grappling with. We can onlt hope that the PMB administration will not allow the nation to continue on the unsustainable expenditure we have ;ived through the oil boo years from 2007.

    • Damilola

      They have failed in purporting Democratic principles, the rule of law comes to use when it pleases them, a single state election can’t be concluded, the tension in politicking is so high, that governance has become lame. Still, they shout Change and tell they’re refined Democrats. They followed their PRs strategy: “if you repeat a lie often enough, it becomes the truth, if you tell a lie big enough and keep repeating it, people will eventually come to believe it…” the dreadful strategy of Hitler’s propaganda strategist. It worked for them. But winning election is less than the real deal- governance. People are quick to be tiring of someone, only the charismatic actions of dignity and honour makes the stay blooming.

      I hope they fulfill these and I bet public opinion will remain force behind them.

  • Pastor Chris Allu

    Fiscal Federalism is the answer.Lazy and parasitic governors should be sent to build more dams for electricity and agriculture; army generals should man defence ministry and not petroleum;political scientists should not man solid minerals ministry.May our oil wells dry up,amen.

    • Felix

      May God bless you

  • emmanuel kalu

    This is the right step but not enough. There are still too many agencies, that most people clearly don’t know what they do. there are agencies that could take on the responsibility of other, so that their cost would be cut. we need to stop depending on oil to fund our government. There are other resources that we need to develop to generate more revenue and jobs. With immediate effect, we need to start developing our solid minerals. The government right now, can generate some revenue just by taxing and curtailing the activities of illegal mining.