Infostride News reports on the unveiling of the 2024 budget, revealing that the Federal Government of Nigeria aims for a fiscal allocation of N27 billion, with the lion’s share, approximately N7.94 billion, anticipated to be generated from the export sales of crude oil. This represents a substantial 247% surge compared to the figures from the preceding fiscal year, 2023.
Delving into the intricacies of the budget, one crucial facet under scrutiny is the assumption regarding oil output. The success of this projection plays a pivotal role in determining the foreign currency (forex) revenues accruing to the federation. Notably, forex revenues hinge on international oil prices and the volume of oil exported through official channels.
Despite Nigeria’s lack of control over global oil prices, it exercises influence over the volumes pumped. The significance of foreign currency earnings lies in Nigeria’s exposure to dollar-denominated Eurobond debt at commercial rates and its substantial imports of food and fuel. Setting a target of 1.78 million barrels per day (mbpd) for oil production in 2024, the nation implicitly acknowledges its inability to reach the 2006 production figures of 2.5 mbpd, a shortfall attributed to issues such as oil theft and illegal bunkering in the Niger Delta.
A notable risk factor is the decision by OPEC, the oil cartel to which Nigeria belongs, to enforce an output cut for Nigeria, reducing it to 1.5 mbpd. This move is deemed necessary to stabilize falling oil prices. The discrepancy between the set target and the OPEC-mandated cut poses a challenge to Nigeria’s oil revenue projections.
Shifting the focus to inflation rates, the 2024 budget assumes a target inflation rate of 21.40%. However, recent data from the Nigerian Bureau of Statistics in November indicates an inflation rate of 27.44%, with food inflation reaching 30%. In Nigeria, where the Consumer Price Index is predominantly composed of food items, accounting for 51%, inflation is particularly sensitive to increases in food prices. Insecurity in major food-producing regions and infrastructure breakdowns affecting food transportation to cities contribute to inflationary pressures.
An intriguing question arises concerning the extent to which monetary policy can mitigate high food prices. While the Central Bank of Nigeria (CBN) may succeed in combating monetary inflation caused by excess liquidity, the effectiveness of raising interest rates in boosting the output of essential commodities like tomatoes remains uncertain.
Examining the growth rate, Nigeria anticipates a modest economic growth of 3.76% in 2024. Compared to the average growth rates of 6% recorded from 1999 to 2014, this figure appears relatively frail. Considering the estimated population growth of 2.38% according to the World Bank, the projected economic growth barely surpasses the population rate, leaving minimal room for error.
The benchmark oil price assumes significance in Nigeria’s fiscal strategy. By establishing a fixed revenue price for crude oil, any surplus above this benchmark goes into the “Excess Crude Account,” serving as a savings buffer. The chosen benchmark holds implications for revenue distribution to Ministries, Departments, and Agencies (MDAs) and the Excess Crude Account. A higher benchmark implies more revenue for MDAs but less for the ECA, while a lower benchmark allows for prudence in spending, as expenditures are based on projected revenues.
In the case of the 2024 budget, a benchmark of $78 has been set, reflecting prudence in light of the average oil prices of $78.22 recorded in 2023. However, the recent weakness in oil prices has prompted an OPEC+ decision to cut output, introducing a risk factor that the oil price may fall, pressuring the budgeted benchmark.
The exchange rate, often considered the economic report card, presents an ambitious projection in the 2024 budget, with an exchange rate of $1:750, while the parallel market rate is around $1:N1000. The assumption underlying this projection is that net exports will strengthen the Naira. However, achieving this hinges on posting a net export number inclusive of invisible exports without restrictions, a challenging endeavor given the significant drain on reserves from foreign education and health forex requests.
Despite a fall in oil exports, the term “exports” encompasses remittances, Foreign Direct Investments (FDIs), and Foreign Portfolio Investment (FPI) inflows. The feasibility of the exchange rate projection depends on stabilizing the macroeconomic environment, potentially increasing these inflows. While ambitious, the goal is not entirely implausible.
In conclusion, the 2024 budget is laden with assumptions that warrant careful monitoring. The nation’s economic well-being hinges on these variables aligning favorably, providing a much-needed respite for Nigeria. Infostride News remains vigilant, observing the unfolding economic dynamics in the hope that these assumptions materialize positively for the country.
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