editorial
The global oil market recently witnessed an 18 per cent fall in prices in the third quarter of this year, when they hit an average $ 95 per barrel. Several factors have been blamed for this trend.
On one hand is the weak demand from Europe that is yet to fully recover from the economic downturn. On the other hand is the drop in growth of the Chinese economy, while the significant fall in oil imports by the United States – courtesy of its improved shale oil production, is also a factor. This is just as the development is partly attributed to Saudi Arabia, the world’s largest oil exporter which may have acted to retain its share of the trade, in the face of increasing shale oil production in the west, particularly the U.S.
For the oil consuming industrial economies, the fall in prices would naturally be a welcome turn because it would mark a reduction in energy costs. But for oil producing countries – in particular the developing economies, the situation translates into reduced revenues and unplanned scaling down of budgetary expectations. The indicators are that prices will fall further.
Nigeria, with its dependence of over 90 per cent on oil revenue, will certainly find the situation particularly worrisome, making the government apprehensive regarding the stability of its revenue sources, given the challenges it is presently grappling with. In the face of disproportionate contribution from internally generated revenue, the dependence of the economy on a diminishing base of export earnings from oil, presents significant challenges. Beyond the traditional challenges of fighting massive corruption and mass poverty, improving quality of life and building infrastructure, is the incidence of insurgency in the North Eastern part of the country that has exacted a heavy toll in terms of widespread loss of property, lives and limbs, and the task of rehabilitating the thousands of victims of the crisis.
Added to these is the situation in which an average of 70 per cent of the annual budget is spent on non-regenerative recurrent expenditure to the detriment of capital growth and sustainable development. Meanwhile, even with the paltry allocation to capital vote, hardly is the budget implemented beyond 35 per cent in any given year in recent times. This has led to despair and growing loss of faith in the capacity-or ability- of the government to act in the public interest.
The prognosis for 2014 for the Nigerian economy presented to the government by the end of 2013 clearly pointed out the likelihood of the present turn of events. At various fora since, the government was given a peep into the indicators that might define a pallid state for the economy in 2014. Instead of adjusting to such warning signs, government officials appeared to be content in parading self-serving delusionary figures that only massaged their ego, and offered the country little value.
The management of the economy in this way has led to massive shortfalls in government revenues and attendant dislocations in public service delivery. Only recently, the monthly Federation Account Allocation Committee (FAAC) meeting for October 2014, at which the revenue sharing between the Federal and state governments holds, was postponed because not enough money had been collected.
The unfolding scenario dictates a complement of imperatives for the government to address. Primary however is the need to review the 2014 budget and the projections for 2015, with a clear shift of budgetary priorities from recurrent to capital. Even with an election season looming, this shift has become even more compelling.
The government needs to develop the political will to do all that is required to develop a long-term plan to move the nation out of dependence on a single market commodity as its economic lifeline.
