Nigeria plans to lower its assumed benchmark oil price for next year's budget by $5 per barrel to $73 and use reserves to meet ongoing government spending, its finance minister said on Sunday.
Ngozi Okonjo-Iweala said a six percent drop in oil revenues following a world crude price decline would require the government to cut non-essential spending and raise more revenue.
She said the revised medium-term expenditure plan, which is used in preparing the budget and must be approved by lawmakers, would keep the 2015 oil production projection at 2.27 million barrels per day, down from 2.38 million in 2014.
“We think that for now, let us bring the benchmark price down to $73 then have a series of additional measures so that at each price it falls to, we would be able to kick in appropriate measures to keep this economy going,” Okonjo-Iweala told reporters.
A lower assumed oil price means a tighter budget in 2015, though this is unexpected given it will be an election year, when politicians' demands for funds tend to surge. President Goodluck Jonathan faces a presidential poll in February.
Brent crude, the benchmark against which Nigeria's oil is measured, has fallen more than 30 percent since July. Nigeria depends on crude exports for more than 70 percent of government revenues.
The fall has triggered a selloff in Nigeria bond and stock markets, hurting the naira which is down almost 8 percent this year despite the central bank spending billions of dollars to defend it.
Okonjo-Iweala projected 2015 expenditure of 4.66 trillion naira, down 2.92 percent from 2014, on revenues of 6.83 trillion naira, lower than the 7.287 trillion initially penciled in.
She rejected calls she said were coming from parts of government to print more naira: “Printing money without adequate revenue support will lead to serious consequences for the country. It will spur inflation.”
In the past, lawmakers have tended to inflate the assumed oil price if they believe it is too low as they want excess cash to feed extensive political patronage networks, analysts say. But given oil prices are falling they might refrain this time.
However, the oil savings Excess Crude Account (ECA) is prone to being raided. Okonjo-Iweala said the government will tap about half of its $4.11 billion ECA, which has declined from $11.5 billion at the start of 2013, to meet current obligations.
She said Nigeria still had funds to pay salaries and keep debt obligations but with crude likely to fall the government would increase taxes on luxury items and ban non-essential government travel to cut expenditure.