Despite the fact that $72/per barrel (pb) oil price benchmark was used for the 2012 budget, the Governor of the Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi, said that a decline in oil price to around $85 or $90 a barrel portends problem for the country.
Sanusi also warned the federal government not to spend beyond the N880 billion earmarked in the 2012 budget for funding of subsidies, stressing that was not sustainable.
The governor, who spoke during an interview with Reuters in New York on Sunday, stated that a decline in oil price to around $85 or $90 a barrel – from around $120 now – could lead to a shortfall in projected revenues and higher budget deficits if Nigeria’s oil output did not increase.
The Minister of Finance, Ngozi Okonjo-Iweala, had said last week that Nigeria was not meeting up with the 2.48 million barrel projected in the 2012 budget due to disruptions as well as theft.
“Our concern is that the? major decline in the price of oil or (domestic) output would lead to a massive depreciation of the currency, a collapse in reserves and a huge growth in deficits and some of the states outside the oil-producing region might find themselves in a situation where they are not able to pay salaries raised by the budget in view of the declining production output,” he said.
The apex bank Governor who hinged his current stance on?? the recent discussions between the United States and other industrialised nations about the possible release of strategic petroleum reserves, and signs that producer country such as Saudi Arabia might increase output to help bring down oil prices.
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He stated, “I am trained to think in terms of ‘what ifs’ and that’s the mindset I bring to my job. What happens if oil prices go to $50 a barrel? It’s happened before.” Sanusi, who specialised in risk management and who is allied with the Finance Minister, Ngozi Okonjo-Iweala, in the push for reforms, has warned that Nigeria’s system of subsidising fuel prices was unsustainable.
He said the government should spend no more than the 880 billion naira for subsidies in 2012 earmarked in the budget signed by Nigerian President Goodluck Jonathan on Friday.
?? He added that “I would simply like to see that the government does not pay a penny more than that, no matter what happens”.
Speaking further on?? the monetary policy, Sanusi said the CBN was comfortable with its monetary policy stance, having hiked interest rates sharply last year, but that could change if the government breaks its new 2012 budget.
??? The budget includes an assumed average oil price of $72 a barrel, any earnings over which are saved into the country’s excess crude account. That is $2 more than the level recommended by the central bank, but the difference did not translate into a major increase in the planned level of spending, Sanusi said.
??? “So I don’t think the headline numbers alone would justify a change in monetary stance from where we are today,” he said.
??? Nigeria’s central bank implemented a string of rate hikes in 2011 that pushed the benchmark borrowing rate to 12 percent.
??? “We front-loaded most of the tightening. We met seven times last year and tightened six times out of seven.”
? A surprise dip in inflation seen in February from January’s level might continue until about April before an up-tick starting in April or May and price growth could peak at around 14.5 percent in the third quarter before slowing to single digits in late 2013, Sanusi said.
??? “We’ve done most of the work ahead of the fuel subsidy removal. Now it’s about waiting to see that tightening moving through the system which is what we’re seeing.”
??? Sanusi also expressed optimism on the stability of Naira in the foreign exchange market to continue.