Budget Deficit To Rise As Oil Output Dips | Independent Newspapers Limited
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Budget Deficit To Rise As Oil Output Dips

ECA; economic recession, adeosun
Posted: May 16, 2016 at 5:38 am   /   by   /   comments (0)



Isuma Mark



Nigeria’s budget deficit is expected to increase above government’s projection as it fails to contain reductions in oil output due mainly from shutdowns by militants, Independent has gathered.

Nigeria is an oil dependent economy with budget predicated on the price of oil in the international market, thus production or sales disruptions do impact negatively on the country’s economy.

To this effect, disruptions caused by militants in the Niger Delta such as that by the Niger Delta Avengers whose action has caused Shell to shut down its Bonny Light export terminal, is expected to widen the deficit.

The terminal gives the country an output of 217,000 barrels per day, forming a substantial component of the country’s 1.7 million export of oil per day.

With the ongoing development, the Federal Government’s deficit currently put at N2 trillion may hit N3 trillion before the fiscal year ends.

President Muhammadu Buhari recently assented to the 2016 Appropriation Bill, which aims to stimulate the economy with a quarterly injection of N350 billion for capital expenditure.

However, while the government is finding it difficult to obtain loans from international creditors to finance the deficit, anticipated revenue may fall further, deepening crisis in the economy.

The 2016 budget is based on an oil benchmark of $38. Oil price has been oscillating between $42 and $45. Although the government has been able to save in the excess crude account, there are pressures from the state governors for sharing.

Analysts say even if the government shares the savings in ECA, it would do little or nothing to cushion the pressure on financing the 2016 budget.

The major cause of the rising deficit is the reduction in crude oil output.

Economists say this perilous situation could worsen if agitators in Niger Delta cause further shut in of oil production.

Meanwhile, the market responded negatively to removal of subsidy and moves to devalue the national currency, the naira. Commodity prices also rose sharply with food prices worse hit.

Prices monitored in and around Abuja showed that a 50kg of rice added N5,000 to close at N23,000.

Transport fare more than doubled around Abuja, Lagos, Kano and other major cities as commuters were left stranded on the first day of the fuel hike.

“Taxis have adjusted their fares accordingly,” Ijeoma Nnamdi, who works in a blue chip company in Abuja, said.

“There is nothing we can do. Even if you were to go in your car, you would be required to queue a whole day at the filling station to buy fuel,” she lamented.

An economist, Jude Okorie, said, “The response from the market is not unexpected. Unfortunately, the government has no palliative measures to cushion the effect.

“We expect inflation to climb above the 20-percentage mark because Nigeria’s economy is tied to oil. An increase in cost of fuel would fuel increase in everything.

“Expect rent to go up, water rate to go up. So also are prices of rice, beans, everything,” he said.

He added that the country would experience the worse when officially the Federal Government devalues the naira.

“At that point, Nigerians would know the real difficulty we are in. This is just a tip of the iceberg.”