More economic squeeze as oil price plunges

The wealthy Gulf states, led by Saudi Arabia, have made it clear they are ready to ride out the weak prices that have hurt the likes of Venezuela which has called for output cut of as much as 2 million bpd, Reuters reported yesterday.Following the announcement by OPEC, Brent crude fell below $72 a barrel, […]

The wealthy Gulf states, led by Saudi Arabia, have made it clear they are ready to ride out the weak prices that have hurt the likes of Venezuela which has called for output cut of as much as 2 million bpd, Reuters reported yesterday.
Following the announcement by OPEC, Brent crude fell below $72 a barrel, hitting lows previously seen in August 2010.
This is even as the federal government has disclosed its readiness to unveil additional measures to stem the shocks that will be occasioned by a further slide in international oil price from the current $73 to $60 per barrel.
Minister of Finance and Coordinating Minister of the Economy (CME), Dr Ngozi Okonjo Iweala, disclosed this while addressing the 4th annual capital market retreat in Abuja yesterday.
Okonjo-Iweala said: “We have built scenarios around $70, $65 and $60, so if oil price drops to $60 per barrel, we are ready with additional measures. Panic is not a strategy, and we will not give in to all those pundits who are trying to breed panic into the economy.”
The minister disclosed that the recent drop in oil price did not come as a surprise, as it was anticipated since year 2000, which necessitated the mechanism of the excess crude account, to help Nigeria manage the volatility of oil prices.
She dismissed the insinuations by some members of the public that the economic team did not signal warning about the current economic situation, just as she blamed the legislature for always jerking up the oil benchmark.
“All those who are saying that we did not signal that there was problem in the economy, I refer you to the five or six times it was said publicly and clearly; the signaling was there, the president backed us each time we talked about lowering the oil benchmark.
“Many people are familiar with the struggle to make sure we budgeted at a reasonable benchmark, I think it would be disingenuous on the part of many to say that they have forgotten the monumental battle that we took to the legislators but again there was a lot of push backs, the benchmark was continuously raised and was put at $80 per barrel, some years ago, and we protested that this is not right.”
The minister also said that excessive pressures from the states has seen the massive depletion of the Excess Crude Account – meant to provide buffers for  the dwindling revenue projections – from $9 billion in December 2012 to about $4.1 billion currently.
She said the states insisted on drawing additional funds to augment the monthly federal allocation. “When we made this clear, the feedback was: it is already raining, we should spend the money, the constitution did not say we should save.”
The International Monetary Fund has welcomed Nigeria’s austerity measures, but said it may not be necessary. “Of course, the global situation remains fluid and the key issue is being ready to manage downside risks and for the authorities to be prepared, based on assessments of credible scenarios, to consider additional measures, as necessary.”
Nigeria had earlier announced measures aimed at cushioning the impact of the dwindling oil price on the economy, which include revision of the Medium Term Expenditure Framework and the 2015 Budget proposal to the National Assembly.
Daily Trust reports that most Nigerian states rely on the revenue allocation from the federal government to pay salary and execute projects.