Falling oil price: We can master the situation –Okonjo-Iweala
Federal government has made a volte-face, after emphasising that Nigeria's economy was immune from any shocks occasioned by the continued slide in the international price of crude oil about a week ago.
Ngozi Okonjo-Iweala, minister of finance, recently announced that Nigeria has two to three months of rainy day savings to cushion it while contingencies are put in place in a case where world oil prices continue to fall.
According to her, should oil price dip below $78, the country would have to draw down on the Excess Crude Account (ECA), adding that it is already putting in place stricter measures to cushion the effect of the drop on the Nigerian economy.
"Our intention is not to run in there and raid it, but even if prices continue to go down we can survive sufficiently for two to three months. That is the time needed to get other measures in place. What you don't want is a hard landing. Our buffers are slimmer this time," she observed.
The minister further noted that there is about $4 billion in the ECA at present, $2billion short of what the International Monetary Fund had recommended, while stating that the country needs to ramp up our non-oil revenues on the fiscal side, and that global consulting firm, McKinsey, has been engaged to carry out an extensive review of revenue services in order to identify potential gains.
Okonjo-Iweala maintained that she was encouraged by an exhaustive data review, which saw Nigeria's economy overtake South Africa's as the continent's largest; showing that the economy had diversified to a much greater extent than previously thought.
"In an oil country you can never feel at ease exactly. But I feel we can master this situation because we have a diverse base. We will have to look very hard at recurrent expenditure, and identify overlapping agencies.
"When the price is heading down everyone sees the necessity but that doesn't stop them hating you," she stated.
However, she agreed that lower oil prices would provide a stronger incentive to government to rein in oil theft, which has cost billions of dollars a year, and help to drive through stalled oil sector legislation to stimulate production.
"That would enable us to pick up quantity to help us cushion on the price side," the minister opined.
Meanwhile, federal government, who practically depends on oil for about 80 per cent of revenues, is assuming an oil price of $78 per barrel for its 2015 budget, up from $77.5 per barrel in 2013 and precariously close to recent world prices.
It is worthy of mention here that the last time the world price of oil tumbled, Nigeria was in a much stronger position with about $22 billion saved in the ECA. Those funds helped the country weather the 2008 global financial crisis with economic output relatively unscathed.
Thus, during recent boom years the government has persistently used the ECA, dividing out the proceeds among the 36 states in the federation, which are constitutionally entitled to their share. Nigeria also holds foreign reserves equivalent to $39billion.
The situation of a slide in the price of crude oil as well as production losses occasioned by shut-ins and the shut-down of trunk lines at various oil terminals resulted in a N99.55 billion drop in Nigeria's September revenue to N502.09 billion from the N601.64 billion generated in the previous month.
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