The Sunday Mail
NIGERIA lowered its budgeted oil price for a second time in less than a month, signalling government revenue is set to plunge in Africa’s biggest crude producer.
The medium-term budget plan for 2015 to 2017 will be based on an oil price of US$65 a barrel, Paul Nwabuikwu, an Abuja-based spokesman for the Finance Ministry, said in an e-mail Thursday.
On November 16, finance minister Ngozi Okonjo-Iweala cut the proposed benchmark price to US$73 a barrel for 2015, down 5,8 percent from this year’s budgeted price.
Global oil prices have plunged more than a third since June, roiling Nigeria’s markets, eroding foreign-currency reserves and prompting policy makers to devalue the naira for the first time in three years.
With crude exports accounting for about 70 percent of government income, the revenue slump may force authorities to curb spending in an election year.
“It is a realistic price for the country,” Bismarck Rewane, chief executive officer of Lagos-based consultancy Financial Derivatives Co, said by phone today from London. “The cut will mean a significant reduction to the budget.
The government has to push for the legislature to accept it.”
The revised budget plan was submitted to the National Assembly for approval, Nwabuikwu said.
Fiscal Flexibility
“This is a good plan, as it means there is some fiscal flexibility,” Razia Khan, the London-based head of African economic research at Standard Chartered Plc, said by e-mail Friday. “The downside is that we will not get great detail on spending allocations.”
The naira snapped a two-day gain, falling 0,2 percent to 179,95 against the US dollar on the interbank market.
Central Bank of Nigeria governor Godwin Emefiele said last week that earlier revisions to the budgeted oil price to US$73 a barrel may have been “overly optimistic”.
Nigeria is among oil exporters, including Russia, Venezuela and Iran, whose budgets and currencies are being pressured by the drop in crude prices.
The Organisation of Petroleum Exporting Countries kept its output ceiling unchanged last week, pushing prices to five-year lows.
The government in Africa’s largest economy is also struggling to contain an Islamist insurgency that has killed more than 13 000 since 2009 as political tensions rise before February elections.
President Goodluck Jonathan, who’s seeking re-election, is facing the stiffest opposition challenge to the ruling People’s Democratic Party party in 16 years after three opposition groups merged last year to form the All Progressives Congress.
…as SA moves closer to
Meanwhile, South Africa’s worsening government finances are pushing the nation’s credit rating closer to junk, Fitch Ratings Ltd said.
Fitch, which rates the country BBB with a negative outlook, is scheduled to release a review of its credit profile on December 12.
Moody’s Investors Service cut South Africa to Baa2, the second-lowest investment grade and a similar level to Fitch, on November 6.
Standard & Poor’s reduced it to BBB-, the last investment grade, in June.
“Public finances in South Africa, which used to be a relative rating strength, no longer are,” Richard Fox, head of Middle East and Africa sovereign ratings at Fitch, said at a conference in London Thursday.
The country was “barely keeping pace with the BBB peer group” in terms of GDP per person and had “fallen closer and closer to the BB median,” he said.
Africa’s second-biggest economy is projected to expand 1,45 percent this year, the slowest pace since the 2009 recession.
As the country grapples with labour strikes, power cuts and a 25 percent unemployment rate, the highest among African, Middle Eastern and Latin American nations, according to data compiled by Bloomberg.
South Africa’s ratio of debt to gross domestic product was 48 percent at the end of 2013, compared with an average of 40 percent for BBB countries, according to Fitch.
The rand weakened as much as 0,2 percent to 11,2462 per US dollar, before reversing losses to trade 0,4 percent stronger at 11,1706 as of 6:17pm in Johannesburg on Thursday.
Yields on benchmark government bonds due December 2026 fell five basis points, or 0,05 percentage point, to 7,7 percent.
South Africa is only stronger than most BB- and B-rated countries when it comes to “structural issues” such as control of corruption and the quality of institutions, Fox said.
