Why we pegged oil benchmark at $75 – Okonjo-Iweala

Posted by admin Latest Politics, Oil Politics Thursday, October 11th, 2012

The Federal Government is insisting on the benchmark price of $75 per barrel of crude oil in order to shore up the economy and make for macroeconomic stability, the Minister of Finance, Dr. Ngozi Okonjo-Iweala, has said.

Okonjo-Iweala, who spoke to journalists shortly after the presentation of the 2013 budget proposals to the National Assembly by President Goodluck Jonathan on Wednesday, said $75 was the sensible price to fix the benchmark.

The National Assembly, however, is insisting on a benchmark of $80 per barrel, after backing down from $85 that its joint committee had earlier recommended.

The minister said the budget was predicated on the assumption that the country would produce 2.53 million barrels of crude oil daily.

According to her, another reason that makes the $75 benchmark attractive to the Executive arm of government is the need to ensure prudent management of finances.

Okonjo-Iweala said in order to reduce friction, the Executive would be meeting with the National Assembly to put forward the argument why government retained the $75 benchmark in the budget proposals.

She said, “The benchmark is based on an econometric module that estimates five and 10 years moving averages. Government cannot just take the number from anywhere. You have to have a basis for developing the benchmark.

“The benchmark for Algeria is $37; Venezuela, $50; Qatar, $55; Kuwait, $60; Saudi Arabia, $60; Oman, $75; and Angola, $77. What government is proposing is within the ambit of what other countries are proposing. We don’t see any country with $80 benchmark.”

She added, “The benchmark price will safeguard what is precious to the economy, which is the macroeconomic stability of the country. If we go with a high benchmark, a lot of liquidity will be thrown into the system, because it is not just the Federal Government we have to worry about.

“The benchmark also affects the money that goes to the states. So, even if you are trying to reduce the Federal Government’s fiscal deficit, the states are not under that obligation. They will be spending and that will throw up a lot of liquidity, which can lead to higher inflation and depreciation of the exchange rate, which will force the Central Bank of Nigeria’s governor to raise interest rates, which is not pleasant for the private sector.”

The minister argued that the uncertainties currently ravaging the world and occasioning low demand would affect countries that depended on a single product.

She added that a petroleum product’s subsidy of N971bn was provided in the 2013 budget as against the 2012 figure of N888bn.

Okonjo-Iweala explained that the attention given to women in the budget was part of the administration’s agenda for improving the country’s human development indicators.

-Punchwp_posts