Ahead of the eventual presentation of the 2009 Budget to the National Assembly has come the news that governors of the 36 states of the Federation have agreed with the Federal Government over the benchmark crude oil price for the 2009 budget.
From the demand of $50 per barrel, the governors finally accepted that the proposal for $45 per barrel is more realistic. With wide spreading recession and tumbling oil prices, it was surprising that the governors who have finance commissioners and economic advisors had to wait to be convinced at last week’s economic council meeting.
From a high $147 per barrel about three months ago, crude oil prices have been on a downward slide, reaching below $50 per barrel over fears of global recession. That was the lowest since 2005. Economic reports from around the world indicate a slowdown of economic activity and consumption. The Eurozone has slipped into recession and so has Japan, the world’s second largest economy. Although the United States has not formally declared that it is in recession, its economy has been hallmarked by biting economic crunch, falling consumer demand and historic unemployment figures. For example, new claims for unemployment benefits in the US surged to a 16-year high last week. Not even the bullish Chinese economy, in which high demand for oil had caused rising prices, has been the spared the growing decline. With falling demand for China-made goods overseas, experts say more than 65,000 Chinese factories have gone bankrupt this year.
As major economies decline, a fall in the demand for crude oil and gas is just a matter of course. It is even feared that the southward movement of crude oil prices may not stop at the budget benchmark.
Nigeria’s case is not helped by the unending crisis in the Niger Delta that has caused large production shut-ins. Additional pressure on the country’s economy are expected to come from reduced funds repatriation from Nigerians abroad and reduction of foreign direct investment as well as foreign aid.
This is already a matter of concern to African leaders. At the Sixth African Development Forum (ADF), one of the foremost conferences on Africa's development challenges meeting in Addis Ababa, Ethiopia, they pleaded that the global financial crisis should not affect financial aid and more assistance to combat poverty.
Government’s earlier decision to cut the benchmark oil price in its draft 2009 budget to $45 per barrel from $62.5 in the wake of sharp falls in world crude oil prices was therefore a realistic decision. But it also means reduced government spending and signals significant belt-tightening.
From a period of oil boom to a sudden burst, the sharp contrast may be painful and difficult to adjust to. One ready question Nigerians are bound to ask is how the Federal Government is going to use the excess crude oil earnings made during the year. Also likely to be asked is how living standards are likely to be improved in a lean season when there wasn’t much improvement in the quality of lives of many Nigerians during the just-ended oil boom.
While it is expected that a careful government like the current administration will be able to curb frivolous spending, it has to work harder to check endemic corruption which constitutes a major leakage in the economy.
Although we appreciate the high cost of running successful democracies, we are concerned over the high recurrent expenditure of government and suggest that it is reduced across all tiers and levels of government. On the other side of the coin, considering the current state of the economy, we caution against further cuts in capital expenditure.
But above all, leaders at the federal, state and local council levels should show good example of prudent spending at this lean time. It would be encouraging to have the National Assembly follow suit.
