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You are here:Home>>Strategic Research & Analysis>>Nigeria's $28Bn budget pivoted on $45 oil price is not realistic
Tuesday, 07 November 2017 20:14

Nigeria's $28Bn budget pivoted on $45 oil price is not realistic

Written by Emeka Chiakwelu
President Buhari deivering budget speech President Buhari deivering budget speech

Nigeria’s President Muhammadu Buhari presented on Tuesday a 2018 budget of 8.612 trillion naira ($28.16 billion) to lawmakers.  The budget announcement is biggest ever, which is to aid the recovering and battered recession economy.

"The budget forecast a deficit of 2.005 trillion naira ($6.56 billion), down from last year's 2.36 trillion naira, in a country that just clambered out of its first recession for 25 years in the second quarter of 2017, but still grew slowly. Each of President Muhammadu Buhari's budgets has set a record high level of spending, but economists say implementation, particularly on capital expenditure that is meant to drive infrastructure development, has been lacking," as reuters intelligently appended.

The 2018 budget was based on the price of oil at $45 and exchange rate at N305 per dollar.  These two anticpations on exchange rate and oil price are not realistic. Nigeria is probably energized by slow creeping oil price and hinges on the hope that no matter how bad it becomes that oil price will not nosedive to less than  $40.  This is hoping against hope and it is detrimental to economic policy formulation and implementation.

This is where the problem comes in and high bloated hope is crashed when disappointment rains down. Nigeria has a problem of budgets  implementation  because her forecast on oil price always turns to nightmare. And when it comes to naira exchange rate to a dollar, she is also off the mark. 
Nigeria exerted little or no leverage on the stability of naira and its exchange rate. She has in the past handed over her monetary policy to IMF. Therefore how can you predict with power and alacrity that those indices you are propounding are sustainable. Nigeria does not decide her exchange without the influence of IMF and state of the dominant US dollar must be reconciled.

Image result for oil price 2018 forecast

It is high time we stop kidding our self, the outside world decide the fate of our currency due to Nigeria's inability to take control of her economic and financial future. 

The price of oil will not be hovering in forties by the 2018.  It is good to feel good with the price of oil at $62 due to the crackdown in Saudi Arabia. 
"Early trading Sunday evening was strong, while the Brent price on Monday rose above $62 as WTI edged above $55. That marks a two-year high, with prices returning to levels not seen since July 2015, marking a 40% increase from the lows experienced last June. Another factor influencing events is the anticipated sale of Saudi Aramco, the state oil company and quite possibly the world’s most valuable company. MBS has championed the move to put part of Aramco up for sale, using the proceeds to fund a massive economic development project known as Vision 2030. He has argued that with “lower for longer” prices in the global oil market and an uncertain future, the Saudi economy must be diversified away from reliance on oil and natural gas production." But when it is resolved oil price will stop its surging mechanism.

The future of oil price is the normal low.  For the long term forecasting: "Many now talk about crude oil heading to $10 a barrel. Such ideas stem from projections of technological changes favoring other sources of energy for economic or environmental reasons, in particular the evolution of Electric Vehicles (EV). It's no secret that the biggest source of demand for crude oil is its use as a transportation fuel. EVs will impact the demand for crude oil in the coming years. The below discussion provides an approach to estimating the price of crude oil in the long term," as Vineet Dhandhania predicted.

Therefore Nigeria's budget for 2018 looks exciting and appetizing but it is not realistic. Nigerian policy makers and experts should review the budget and come up with numbers that are realistic and therefore makes the budget implementable.

Image result for emeka chiakweluEmeka Chiakwelu is the Principal Policy Strategist at AFRIPOL. His works have appeared in Wall Street Journal, Huffington Post, Forbes and many other important journals around the world. His writings have also been cited in many economic books, publications and many institutions of higher learning, including Oxford University and  Harvard Education., This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Last modified on Tuesday, 07 November 2017 20:25

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