Nigeria has revised its budget downwards by 8% and lowered its growth estimates, following the dramatic fall in the price of oil.
Nigeria’s Minister of Finance, Dr. Ngozi Okonjo-Iweala, says the country’s economy will now grow at 5.5% this year, rather than 6.4%. The new budget is based on an oil price of $65 a barrel, rather than the previous assumption of $77.40, although the revised figure is still higher than the recent level of about $60.
Nigeria, Africa’s top oil producer, earns more than 75% of its revenues and 95% of its foreign exchange from oil exports. The country is trying to reduce its dependence on oil.
Oil prices have steadily dropped in recent months and are now about half their previous levels. Falling oil demand on the back of slackening global economic growth, particularly in the Eurozone and China, and an increase in alternative energy supplies, such as shale gas, have led to a mismatch between supply and demand.
Dr. Okonjo-Iweala has urged Nigerians “to begin thinking of the country [as] a non-oil country”.
Nigeria has taken some key steps already in response to the falling oil price, which is at its lowest level since July 2009. It has devalued the naira and has applied higher taxes on luxury items.
Dr Okonjo-Iweala said: “This budget is based on a few key indicators, $65 a barrel benchmark and we are going to stick to it for now, in spite of the decline in prices, because we feel the average price next year will be around $65 to $70. The production level is 2.27 million barrels per day. We’ve revised the growth rate based on the new parameters for the country, down from 6.35% to 5.5% next year. But that is still one of the fastest growth rates we’re experiencing in the world today.”
“All the price intelligence we’ve been able to gather from analysts and so on indicates that in 2015 prices will steady more than they have at the present,” said Okonjo-Iweala. “If we don’t get that price, we should be ready to make the necessary adjustments.”
The country has trimmed expenditure to N4.36T ($23.3B) in 2015. Gross net revenue is estimated at N6.9T with oil output seen at 2.27 million barrels a day. Recurrent spending, such as salaries, was proposed at N2.6T, with N634B for capital projects and N943B for debt servicing.
“It is going to be tough,” said Okonjo-Iweala. “We should see these challenging times as opportunities to further move this economy on the right path.”
Okonjo-Iweala said the government will seek to strengthen tax collection, raise taxes on mansions, luxury yachts and cars, champagne, wine and spirits, and diversify the economy away from oil.
“We have decided that we are not going to go and borrow our way out of this,” said Okonjo-Iweala. “This is a budget which is designed not to weigh down on the average Nigerian.”
Nigeria’s currency, the naira, lost 3.5% on the day, hitting a record low of 187.10 to the dollar. The naira has declined 14% this year against the dollar.
President Goodluck Jonathan‘s ruling People’s Democratic Party (PDP) will face its stiffest challenge yet since coming to power at the end of army rule in 1999. Jonathan, a southern Christian, faces a united opposition led by former military dictator Muhammadu Buhari, who is expected to gain large support from the mainly Muslim north.