Saving the Economy from the Tyranny of Falling Oil Prices

#1
Economy.jpg

The persistent fall being recorded in crude oil prices globally is a major source of concern for practically all oil-producing nations. The situation is being felt hardest here in Nigeria where crude oil accounts for more than 80% of exports and where almost 90% of our GDP comes from crude oil sales.

The effects of falling oil prices are already being felt as the value of the Nigerian Naira nosedived over the last couple of weeks. However, the main effects of falling oil prices will be felt in the coming months as the government is forced to maintain its increasing expenses with practically half of its income from last year. Hence, it becomes necessary for economic stakeholders to return to the drawing table in order to take proactive steps to defend the Nigerian economy.

It Starts With the Budget

The 2015 budget as proposed by President Goodluck Jonathan had the crude oil benchmark price for the N4.3 trillion budget at $65 per barrel. The $65 per barrel benchmark is even below the $78 per barrel benchmark that the Federal Government had initially proposed for the budget in the first Medium Term Expenditure Framework that was submitted to the National Assembly for 2015-2017.

However, the truth of the matter is that the $65 per barrel benchmark would still have us running the economy in dangerous waters because the price of crude oil has breached the psychological support at $50 per barrel. The Brent fell to $48 per barrel today to mark a 26.15% decline from the $68 benchmark of the Federal government.

Interestingly, some members of the House of Representatives have awakened to the fact that $65 per barrel benchmark price of oil might not hold. Hence, they are suggesting that the crude oil benchmark price for 2015 be set between $40 and $45.

I posit that the honorable members of the house who suggested a lowering of the benchmark price are being proactive and realistic in their submission. Nonetheless, the facts surrounding falling oil prices suggest that the benchmark price for the 2015 would be more realistic between $35 and $40 per barrel.

I make this assertion in view of the fact that $39 was the strongest support point for crude oil during the global financial meltdown of 2008 when oil fell from as high a $120 per barrel to $39 before picking its way back to $100 per barrel. Hence, a $39 benchmark would have prepared for the worst-case scenario. The best part is that the economy will be able bounce quickly if the drop in oil price is halted before it touches $39 per barrel.
 
[1216]
Your email address will not be publicly visible. We will only use it to contact you to confirm your post.
Top