FG’s 2019 revenue projections shaky as oil prices drop to US$53.01 per barrel
By Revenue projections in Nigeria’s 2018 budget proposal is already falling apart as Brent Crude oil price continuous to drop. Brent crude was trading at US$53.01 on Wednesday evening after initially dropping below the US$50 mark earlier in the day, sending panic through the oil market.
On Wednesday morning, Brent Crude was trading at US$50.79 per barrel, almost US$10 below the US$60 per barrel on which the 2018 budget was based on. The volatile oil price is putting at risk Nigeria’s 2018 oil revenue projection of N6.67 trillion, of which more than 50 percent was expected to come from oil revenues. The revenue projection had been considered ambitious.
The continuing collapse in oil prices signal investors are worried about a 2019 recession in the US, Helima Croft, global head of commodity strategy at RBC Capital Markets told CNBC.
Oil prices have now plunged by about 40 percent from their 52-week highs at the start of October. Last week alone, U.S. West Texas Intermediate crude tumbled 11 percent, posting its worst weekly performance in nearly three years, according to a report by CNBC.
On Monday, WTI fell below $45 a barrel for the first time since July 2017. On Wednesday morning, it was trading at US$43.09 while Brent Crude was trading at US$50.79 as at 10.26 a.m. when BusinessDay checked live crude oil prices.
“I think what we’re seeing in oil is a big, big concern for 2019 about a recession. I think that is really weighing heavily on this market,” Croft told CNBC’s “Closing Bell” on Friday.
Buhari while presenting a N8.8 trillion spending plan for 2019 had made a revenue projection of N6.97 trillion despite achieving only 53 percent of 2018 revenue targets three months into the year.
While giving breakdown of the sources of revenue, Buhari disclosed that the sum of N6.97 trillion (3 percent lower than the 2018 estimate of N7.17 trillion), consisting of N3.73 trillion oil revenue while non-oil revenue is estimated at N1.39 trillion.
President Buhari said the administration has earmarked the sum of $1 billion (N305 billion) for fuel subsidy also called Under Recovery in 2019.
The budget is based on assumptions of $60 per barrel of oil benchmark at 2.3 million barrels per day, a GDP growth rate of 3.01 percent and inflation rate of 9.98 percent while exchange rate was based on N305/$.
Allocations to sectors are as follow Ministry of Health (N315.62billion), Ministry of Education (N462.24 billion), Ministry of Defence (N435.62 billion) and Ministry of Interior (N569.07 billion).
According to the president, the budget deficit is forecast to drop to N1.86 trillion which will be about 1.3 of GDP in 2019, from N1.95 trillion forecast for the preceding year. In his words “this reduction is in line with our plans to progressively reduce deficit and borrowing over the medium term”.
Micheal Ani
2019