'Empty' ECA, Low Purchasing Power Signpost Tough 2019, Analysts

John Omachonu



Even before the combatant National Assembly (NASS) debates and passes the budget next year, the nation’s proposed estimates of income and expenditure for next year is enmeshed in fresh fears of misalignment following a cut in Nigeria’s oil production quota by the Organisation of Petroleum Exporting Countries (OPEC) by 3.04 percent to 1.685 million barrels per day for the first half of 2019.

The development is considered as part of efforts to reduce oversupply in the global crude oil market by the Organization.

The production cut, which is to be implemented from 2019, has cast a shadow over the 2.3mbpd crude oil production assumption on which the 2019 budget is based. Nigeria expects 52.9 percent of its N8.83 trillion proposed budget to be funded by oil revenues.

Also the retention of $60 benchmark price is considered as over ambitious and unrealistic considering further sliding of the oil price at the international market, which is currently below the budget price.

President Muhammadu Buhari presented an N8.83 trillion ($28.80 billion) budget for 2019 last Wednesday, laying out plans to drive growth to a raucous parliament that highlighted divisions two months before the election.

The spending plan for Africa’s top oil producer assumes crude production of 2.3 million barrels a day, an oil price of $60 per barrel and an exchange rate of N305 to dollar.

Another disturbing signal is the Excess Crude Account (ECA), the only buffer for the country against oil revenue volatility, which fell seventy-six percent to just above $600 million in three weeks.

The Federal Government was said to have withdrawn $1.6 billion in three months, between November 25 and December 19, 2018, thereby shrinking ECA to $631 million.

Some analysts say at the weekend that these may be signs of taste of what to expect next year, even as Nigerians are experiencing low purchasing power in the midst of rising cost of food items.

OPEC and 10 non-OPEC countries agreed earlier this month to cut oil production by 1.2 million bpd effective from January for an initial period of six months to shore up what many expect to be weakening market fundamentals ahead.

Nigeria, which was exempted from the previous cuts since January 2017,was asked to join the deal during the OPEC meeting on December 7 in Vienna.

With a reference level of 1.738 million bpd, Nigeria’s oil production is to be cut by 53,000 barrels to arrive at the new quota of 1.685 million bpd, according to a breakdown of member quotas under OPEC’s supply accord released by S&P Global Platts last week.

Ibe Kachikwu, Nigeria’s junior petroleum minister, said on December 7 that it was very difficult for Nigeria to reduce its crude oil production.

Kachikwu, who spoke on ‘Bloomberg Daybreak: Europe’ ahead of the OPEC meeting in Vienna, stated that there was a need for an extension of production cuts to stabilise the global oil market.

Asked if Nigeria would be able to reduce production, he said, “It is very difficult to do that but where we are now, everybody must be seen to contribute. Obviously, the smaller it is, the more amenable we are to participate; the larger it is, the more we will struggle to participate.

“We have got exemption three times understandably. This time round, I think there is a decision that everybody should be seen to chip in.”

Friday Ameh, Lagos based energy analyst told Sunday INDEPENDENT at the weekend that government will not be able to achieve the desired objective with the $60 per barrel benchmark.

“I consider the assumption as over ambitious and unrealistic since the sliding of the price is becoming uncontrollable,” Ameh said.

Muda Yusuf, director general of Lagos Chamber of Commerce and Industry, LCCI had last week described the budget as too small to create any meaningful impact compared with the size of the economy.

Yusuf, who spoke on Channels at 10 on Wednesday, said the budget is about five percent of the country’s Gross Domestic Product, (GDP), adding that the expected revenue is too small for investment in infrastructure.

Bismarck Rewane, Chief Executive of Financial Derivatives said that “At $60, the benchmark price could be ambitious.”

https://www.independent.ng/2019-budget-fears-heighten-as-opec-cuts-production-quota-oil-price-slides/


lalasticlala, mynd44

Investors are interested in shale oil.... Even price doesn't break above 50$ watch how recession will loom again.


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loo

Hmm invest wisely check my signature

whatever!
How is this good news to the poor aside minimizing what our politicians will loot.

They should go and cut Buhari

Now the importance of the foreign reserve would come to play.
With a reserve of about $40billion, we can survive six Good months with a bench mark of $40 despite a cut in production..
And pls we should note that the cut in production by OPEC countries and 10non OPEC countries is to push up the price of oil as a result of inadequate supply.
To those who don't understand economics, just brace up for tougher times for at least 7months as it is for our own good..

OK

On my way to villa, any news about Nigeria should wait

Hmmmmn

When Buhari expectation is cut short..
Too much attention on oil... Task alone would have generated more revenue than oil.. Talk less of agriculture..

Meanwhile ::
Browse n earn money... Its free..
This browser pays you for browsing the Internet..

Just click on my signature below to get it.

Nigeria need to depend on other things than oil
Use this as my xmas gift:
https://www.youtube.com/watch?v=_PeLIUDQqK0

ok

First 2019 budget is majorly debt servicing now oil production quota is been reduced na WA oo 2019 Nigerians should tight their already tight belt tighter I t may be a rough ride.

Crazy country run by geriatric patients. After years of claiming to diversify the economy, each successive government still hinges its budget on something as unreliable as crude oil prices.
Pathetic excuse for a country.

Trouble!

Even the so called Budget has never changed the price of Garri, Rice, Yam and Beans since 1100BC talk less of having any impact on the life of the common man. Nigeria Budget only benefits the politivecians and the elites which makes it their problem and not ours. Shikenna !!

while the rest of the world are moving away from ooo, Buhari is wasting billions of dollars searching for non existing oil deposits all over the north.

jumper524:
Now the importance of the foreign reserve would come to play.
With a reserve of about $40billion, we can survive six Good months with a bench mark of $40 despite a cut in production..
And pls we should note that the cut in production by OPEC countries and 10non OPEC countries is to push up the price of oil as a result of inadequate supply.
To those who don't understand economics, just brace up for tougher times for at least 7months as it is for our own good..

YOU do not understan the most basic economics

Foreign Reserves?

Do you know what foregn reserves are
You have 3 problems

You do not know
You do not know that you do not know
You think you know

Foreign reserves are not Government funds.

FOREIGN RESERVES ARE NOT SAVINGS
ONCE AGAIN
FOREIGN RESERVES ARE NOT SAVINGS

They cannot be spent by government.
They cannot be used to "survive" for ONE day.

That statement clearly indicates your cluelessness



Foreign Reserves are CBN funds not government funds

If you do not understand what that means find out please I beg you in the name of Ogun do not ridicule yourself by asking who owns the CBN just keep quiet if you do not understand these things and go back to the Romance section

Chai baba! Kai baba!!!

Fears!!!... Our economy is not only based on Oil revenue nah... as the government is painting it to a lame man.. FIRS, CUSTOMS, AGRICULTURAL SECTOR, EXPORTS,NPA.. Other agencies generate money for the country.. So why the lies and noise about " ONLY OIL".. where does this other monies go to... Private pockets....

0monnak0da:

YOU do not understan the most basic economics

Foreign Reserves?

Do you know what foregn reserves are
You have 3 problems

You do not know
You do not know that you do not know
You think you know

Foreign reserves are not Government funds.

FOREIGN RESERVES ARE NOT SAVINGS
ONCE AGAIN
FOREIGN RESERVES ARE NOT SAVINGS

They cannot be spent by government.
They cannot be used to "survive" for ONE day.

That statement clearly indicates your cluelessness



Foreign Reserves are CBN funds not government funds

If you do not understand what that means find out please I beg you in the name of Ogun do not ridicule yourself by asking who owns the CBN just keep quiet if you do not understand these things and go back to the Romance section

Did I just read this?? Wawu..

when the president was presenting the budget, I was at loss...
exchange rate: 305 against the 365 a dollar
production: over 2.mpbd against the statistically confirmed 1.8mbpd
crude sale: $60 per barrel while international sales was bout $50+ and falling.
where do we get the balance to balance the crude sales and still save for the ECA.
debt servicing is there.

from that, we could easily confirm that the budget is way below par and more like a WISH..

OPEC just did the necessary by cutting Nigeria production to what it really is.....
More borrowing to follows in order to make that budget work thereby plunging us to more debt

APC is full of bad luck, anywhere they enter, things become difficult

Buhari is a disaster.

Don't forget that they(FMofFin) are also looking at introducing new taxes(don't know the category that will bear them)... Will they be forced to undo subsidy?? What is the new minimum wage going to be EXACTLY?? We are definitely in for a RIDE....

0monnak0da:

YOU do not understan the most basic economics

Foreign Reserves?

Do you know what foregn reserves are
You have 3 problems

You do not know
You do not know that you do not know
You think you know

Foreign reserves are not Government funds.

FOREIGN RESERVES ARE NOT SAVINGS
ONCE AGAIN
FOREIGN RESERVES ARE NOT SAVINGS

They cannot be spent by government.
They cannot be used to "survive" for ONE day.

That statement clearly indicates your cluelessness



Foreign Reserves are CBN funds not government funds

If you do not understand what that means find out please I beg you in the name of Ogun do not ridicule yourself by asking who owns the CBN just keep quiet if you do not understand these things and go back to the Romance section

you only made a mockery of your self here by thinking your intelligent.. the foreign reserve has multiple purpose including the maintenance of a country's currency. its only natural our currency losses it's value when our crude export rate goes down. a good reserve would do well in managing the currency in such situations.

and also note that the country can survive for years with positive reserve.

1.Subsides may have to go.

2.Taxes have to go up.

3.Gandollars and company have to go to jail

4.Nigeria must diversify

jumper524:
you only made a mockery of your self here by thinking your intelligent.. the foreign reserve has multiple purpose including the maintenance of a country's currency. its only natural our currency losses it's value when our crude export rate goes down. a good reserve would do well in managing the currency in such situations.

and also note that the country can survive for years with positive reserve.

Guy stick to what you know and stop casting about.

Knowledge and intelligence are completely different things . I do not know whethe you are intelligent or not

What I know is that you do not understand foreign reserves.

Foreign reserves are asssets of the Central Bank
It is not "Natural" for currency to lose value when crude export rate goes down

By the way what is crude export rate

I will assume you are talking about receipts from exports of crude oil. It is not a "rate"

Under the Abacha regime our currencyy remained stable for years at a time when oi prices were the lowest in recent memory.


Once again Foreign Reserves do not play any role in the Fiscal activity of government.

THIS THREAD IS ABOUT THE IMPACT OF OIL PRICES ON THE BUDGET

There is absolutely no connection between the budget and the foreign reserves.

Zero connection


Foreign reserves are assets of the Central Bank while the Naira in circulation are liabilities of the CBN


Nothing to do with budgeting

0monnak0da:

Guy stick to what you know and stop casting about.

Knowledge and intelligence are completely different things . I do not know whethe you are intelligent or not

What I know is that you do not understand foreign reserves.

Foreign reserves are asssets of the Central Bank
It is not "Natural" for currency to lose value when crude export rate goes down

By the way what is crude export rate

I will assume you are talking about receipts from exports of crude oil. It is not a "rate"

Under the Abacha regime our currencyy remained stable for years at a time when oi prices were the lowest in recent memory.


Once again Foreign Reserves do not play any role in the Fiscal activity of government.

THIS THREAD IS ABOUT THE IMPACT OF OIL PRICES ON THE BUDGET

There is absolutely no connection between the budget and the foreign reserves.

Zero connection


Foreign reserves are assets of the Central Bank while the Naira in circulation are liabilities of the CBN


Nothing to do with budgeting

u made more sense now, I'll seize to continue the argument from here even though I partially agree with you.
do have a nice day..

of what benefit is this news to us the masses, we are not afraid because we have been in this mess for some years now, with cut on oil production or drop in crude price, we will survive, we are a resilient people. we know that we have bad leaders and bad managers who do not have the brain to get us of the woods. That is why we are the most hard working black people in the world. buhari and his team obviously lack what it takes to think out side the box. I used to hate GEJ because i thought he is the most incompetent in the world. i did not know that the one (buhari) coming after him will be worse in the world's history before, present, and future. but we will survive.

jumper524:
u made more sense now, I'll seize to continue the argument from here even though I partially agree with you.
do have a nice day..

Stop kidding yourself. You suggested that foreign reserves could be used to plug any shortfall in the budget and that is what I needed to correct.

The Foreign reserves are not available to be spent by the Government

In fact the dollars in the foreign reserves would have come about mainly from oil by the Government exchanging dollars for Naira with the CBN and then sharing the Naira.

So the government cannot spend those same dollars twice. They are now CBN assets

FOREIGN RESERVES HAS NOTHING to do with discussion about budget
Foreign reserves are not savings so the word "reserve" should not mislead any one