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Oil price benchmark: Okonjo-Iweala begs N-Assembly to approve $75

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TOKYO, JAPAN—The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala has urged the National Assembly to see reason with the executive and allow the $75 per barrel of crude oil benchmark stand rather than increasing it to $80 as suggested by some legislators.

Fielding questions from newsmen at the just concluded World Bank/International Monetary Fund meetings in Tokyo, Japan, she stated that oil price benchmark is not a popularity contest and that the legislature and Nigerians should trust her team in managing the nation’s economy.

She disclosed that the original proposal of the executive was $72 per barrel but that it had to be increased to accommodate the two concerns of the legislators, cutting deficit and increasing spending.

Finance Minister, Ngozi Okonjo-Iweala

Her words: “We have been meeting with the Chairmen of the Finance and Appropriations Committees of the Senate and the House and our job is to present all the logical reasons why this is the right thing to do for the economy. This is not a sentiment.

Logical reasoning

“Benchmark pricing is not a thing you just sit down and concoct. They are based on some fundamental economic analysis. And we actually have a model which we use in trying to project Nigeria’s benchmark price, over the past three years. It is not that we sit in one room, close the door and then say this is the benchmark. We have an approach because if you do it in an arbitrary fashion, that means at any point in time, you don’t have a basis to defend why it is this number as opposed to the other number.

“We understand the issues that they want to reduce the deficit. They want to spend more. Actually the figure should have been $72 per barrel and to give the country to spend more, we had to adjust the model a little bit and came to $75 per barrel and accommodate their concern.

“I think there are two issues here. First, we have to listen to those who will be impacted and you also have to listen to the basic professional reasons why this should not be done. Managing the economy is not a popularity contest. There is a bit of reason to it. That is why we went to school to study it.

“Some people think that you can just wake up from sleep and say this is how to manage the economy. That is why the economy is going in the wrong direction.  The only reason why many African economies are growing today is because those African countries did the right thing, in terms of economic policies in the last 10 years and now they are reaping the reward.

“I hope the business community that has been calling me, saying no, we must not go to $80 per barrel. It is not me. The CBN governor is managing the exchange rate. I know that one thing Nigerians care so much about is the value of the Naira and the governor of the CBN who manages the exchange rate has indicated what will happen to the economy if we are to go that way”.
Excess crude account

The minister said she has a presidential mandate to build the Excess Crude Account to $10 billion in the next few months to give a reasonable buffer for the nation.

Dr, Okonjo-Iweala said the lesson to take away from this year‘s IMF/World Bank meeting, where Nigeria‘s economic policies which yielded the high growth rate was commended, is that the nation must continue its prudent resources management policy and build buffer since the uncertainty in the global economy has persisted.

She said that a situation where even developed economies are passing through a lot of difficulties is enough to make Nigeria to be more careful with her resources, and even be more prudent.

Prudent  management policy

Her words: “What we saw here from these meetings, the analysis of both the International Monetary Fund and the World Bank, as well as the assessment of the Finance Ministers and Central Bank Governors is that the global economy is still faced with a lot of uncertainties.

“You (journalists) heard it yourselves. There is a lot of uncertainties globally and that is the reality. We are not the ones saying to make it look gloomy.  There is still uncertainty, there is still fragility. Even in the US where there appears to be a little hope because employment figures have gone up a little bit, there is still a fragility because of the slow recovery.

The Governor of the Central Bank of Nigeria, Mallam Sanusi Lamido Sanusi, said there is no guarantee that oil price will remain high throughout the year.

“Oil price was at $141 per barrel and it came down to under $40 per barrel. Anybody that says it cannot happen is just talking rubbish”.

“It can happen. It is a commodity. All it will take is one shock. One trend in market sentiment and that is it. All the expectations that in Q2 people will make a lot of money in the capital market, they know what happened in China, Brazil and India. It happened in Russia. They made money in Q1 and went and put money in Q2 and they lost the money. So why do we think that oil prices will hold firm in Q3, nobody can guarantee and therefore you have to make sure that we have a reserve in the event of a collapse in the oil prices”, he said.

According to Sanusi, the economic performance would be stronger and leave less attention to the oil revenue once the on-going reforms begin to yield results.

“We panic at oil prices because the structural reforms have not happened yet. Once they happen. Once it gets to a level where it is no longer important, for instance, you don’t need foreign exchange to import food, you don’t need to import petroleum products because you have your own refineries and you are generating money from manufactured products, you will not care about oil prices,” he said.

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