Gabriel Omoh
14 October 2008
NIGERIA'S enormous savings from the oil windfall have been depleted and what is left may not tide the country over any financial turn down should oil price fall below the budget benchmark of $62 per barrel, according to the Governor of the Central Bank (CBN), Professor Chukwuma Soludo.
The leader of the Nigerian delegation to the IMF/World Bank meeting told reporters Sunday here that the current financial and economic crisis posed some financial challenges to Nigeria as the prices of oil are on the downward trend.
According to him, much of the savings in the excess crude account has been disbursed and what is left based on what the three tiers of government in the country agreed on will not be enough to make any significant impact on the budget if the price of oil falls below the budget bench mark.
The Money Market Association of Nigeria in its monthly economic and financial reports said N1.723 trillion had been shared by the three tiers of government from the excess crude oil account.
According to it, N592 billion was shared in May while another N569.79 billion and N562 billion respectively was shared in June and July.
The CBN governor who was flanked by the Accountant-General of the Federation, Mallam Dankwabo, said the federation account committee agreed that N1 trillion be set as the base for the savings and whatever was earned as excess revenue in any particular year, above the one trillion mark, 80 per cent of it should be shared among the three tiers of government while 20 per cent would be saved.
He said of what was saved, the three tiers of government agreed that the sum of $5.6 billion be spent on power, stressing that with the drop in the production level which had resulted in the drop of crude export as a result of the activities of the militants in the Niger Delta, part of the savings had been used to supplement the revenue allocation to the three tiers of government in months when available revenue fell short of the budget provision.
Last month, for instance, the sum of N31.4 billion was taken from the excess crude account to augment the budgetary shortfall for the month. The budgetary shortfall was due basically to the shut-ins and vandalisation of pipelines which had an adverse effect on the volume of production.
The essence of augmentation is to enable the three tiers of government to continue with their projects despite price fluctuations or reduction in the volume of production.
The amount of money that is allocated to each state is standardised, the highest recipients in the second disbursement for augmentation during the meeting of the Federation Account in September 2008 are Rivers State N1.8bn, Akwa Ibom N1.3bn, Delta N932m, Bayelsa N853m and Ondo N551m. Other recipients are Lagos N477m, Kano N635m, Katsina N473m and Oyo State N456m.
He said it was frightening as there were several forecasts of the level oil prices might drop, portending danger for the Nigeria economy.
Vanguard had reported exclusively three weeks ago that studies had shown that oil prices might drop to $50 per barrel. If that happened, the 2009 budget being predicated on $63 per barrel will fall short of budget expectation by $12 a barrel.
Soludo said: "But more fundamentally, almost everybody will be affected one way or the other. So far as you have trade links commodity, prices are going to fall because of declining demand in the major markets, and with the fall in commodity prices we have already seen a 40 per cent fall in crude oil prices.
It is almost at $80 and if you will recall we went above $120. Other commodity, prices copper, cocoa are going to be affected as the global demand falters."
He said one of the issues being discussed at the ongoing annual meeting was climate change which in the long run was going to have a far-reaching implication for the country.
He said the focus of the world now was how to save the environment which had led to the search for alternative to fossil fuel.
With high oil prices, the search for an alternative has been intensified and has become a major campaign issue in the US election. Obama has promised to invest $10 billion a year for over a period of 10 years for research for alternative to oil.
This, he said, had very far-reaching implication for Nigeria which mainstay is oil.
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What do you expect from an administration that would rather waste the windfall accounts on things like the 70 Million Naira spent by one state alone to break Ramaddan fast and the importation of Rice, cement and other items that we could produce internally by impossing adequate tarrifs to allow local producers to catch up. Will these mugus be able to reduce their budgetary marker estimates fast enough to keep up with the fast declining crude oil price – the only person I feel sorry for in all this is Soludo for being in such bad company of mugus. In the news 2 days ago was Olu Falae advising King Tarry-A-Doer to spend the $62 Billion savings now so as to make the people happy about their President (the savings that we just learned, 2 days later, that it is no longer there) - can anyone believe that Olu was a Finance Minister - with ignorant people like him and Shamsudeen, no wonder our nation is always adrift back- wards. Why don’t they wait another 6 months for the declining oil price to reach bottom so the mugus could reduce their estimates to match the actual price once and for all. Leading to 2007, we asked the politicians to be more patient while OBJ continued with the reform policies he started in 1999 so he can hand over to the politicians a more robust economy and more stable polity. But noooo they all shouted in unity claiming that they’ve learned to work amicably amongst themselves for the betterment of the common masses. With their foreign aiders and abettors who never cared for our ordinary folks but for a regular flow of oil as long as we have mugus in power that they can easily manipulate. I am tapped out. Good luck and good riddance to all I ever cared about.