$30 oil price bench mark unrealistic for 2020 budget with COVID-19 – Uwaleke, Capital Market professor warns
* Says projection of 3.4% negative GDP growth rate should not surprise anyone
* Tells CBN to scale up interventions in agriculture
By Udeme Clement :
A Professor of Capital Market, Nasarawa State University, Nigeria, Prof Uche Uwaleke, has said that regarding reduction in reference price for crude oil in 2020 Budget, it would be unrealistic to stick to $30 dollar per barrel, in view of unfavourable developments in international crude oil market and against the backdrop of forecast by International Energy Agency of low oil demand through 2020.
He added, “Even when major oil consumer nations such as US, China and India eventually re-open their economies, the quantum of accumulated unsold inventory will not allow prices to recover appreciably.”
In exclusive chat with Financial Business News, he explained,
“In any case, I expect that a lot of traders, leveraging derivatives, must have locked-in low prices for future delivery of crude oil at least for the next few months in view of the uncertainties occasioned by COVID’19.”
The Capital Market Professor pointed out, “By implication, in the event of an unlikely oil price spike, oil revenue may not be significantly impacted.
“I had also expected a further slash in oil production benchmark from 1.7 million barrels per day for the same reason I mentioned earlier. Given the current supply glut, only a deep cut in output by OPEC and OPEC+ will save the day.”
He emphasised, “The fact is that a Budget is supposed to be guided by the principle of conservatism, which means those saddled with the responsibility of its preparation are expected to err on the side of caution. If at the end of the day, oil price appreciates above the budget reference price, then it presents an opportunity to build buffer or earmark any excess for critical infrastructure.”
He continued, “Having noted that, the implication of this development is grave not only for the Federal Government but also for State governments, whose budget assumptions are also predicated on that of the former.”
He advised, “It calls for cost cutting measures and prioritisation of spending.
“Borrowing to finance the deficit should only be made after a thorough cost and benefit analysis.
Because oil revenue drives the economy even though it constitutes just roughly 10% of GDP, the economic headwinds of 2020 occasioned by the twin shocks of oil price crash and the Coronavirus pandemic will combine to depress economic activities in Nigeria.
“So, projection of 3.4% negative GDP growth rate should not surprise anyone. Faced with this reality, the major concern of the government should be to reduce the recession cycle and minimise its knock-on effect on the ordinary citizen through the right spending targeting Health, Education, power and roads while the Central Bank of Nigeria, C BN, continues to focus on and possibly scale up its interventions in Agriculture, small and medium enterprises”.