By Dele Sobowale

“The Federal Government has proposed $78 as the benchmark price for a barrel of crude oil and fixed the exchange rate at N160 per dollar for the 2015 national budget.” PUNCH, October 16, 2014, p 36.

The report written by Sunday Aborisade exhibits the triumph of hope and self-delusion over reality and the verdicts of economic history and experience. Neither one of the two key foundations of our budget can, by any stretch of imagination, be considered reasonable – given global current situation and trends into 2015.

Last year, $74 benchmark for crude was proposed by the Federal Government, while the National Assembly, NASS, approved $77.5 per barrel. Yet, at the time, crude was selling for over $110 per barrel. The reason the Federal Government proposed $74 is not hard to discover. Jonathan and Ngozi Okonjo-Iweala wanted to beef up the Excess Crude Account, ECA, which they “manage” on behalf of the states. Most people have forgotten how $1bn mysteriously was credited to the account when it was almost totally depleted without any explanation as to source. Knowledgeable economists and financial experts know governments are not magicians; they don’t create money from nothing. So, the $1bn must have come from an undisclosed fund known only to President Jonathan and the Finance Minister.

It is too early to call the source a slush fund, but, it will be interesting to know how much is lodged there and on whose authority and how much is left. For all we know, we might have created Excess Crude Account, ECA, II. That, however, is an issue for another day.

Right now the focus is on the proposed $78 for 2015. To state that it makes no sense is being extremely polite. That it is illogical can be proved easily.

This time last year, crude oil was going for $112, and holding steady at that price, when the Federal Government proposed $74. Today, crude oil is down to about $86 and trending downwards. Now, the government is proposing $78. The margin last year between the going market price and the benchmark was about $38 per barrel. Today, it has dwindled to $8 per barrel and the end is not in sight. In fact, there is a possibility that by December this year the crude price might dive below the proposed $78. Then what?

Meanwhile, the World Bank had been advising Nigeria to increase its ECA significantly next year. It is difficult to imagine where the funds to boost ECA next year will come from if actual volumes again fail to match estimates. Already, what many economists, except government employees and their “consultants” see is a yawning negative variance coming up in 2015.

The alarm rings louder when one turns to the proposed exchange rate of N160 per dollar. The Federal Government of Nigeria can actually be accused of playing politics with the currency, and by extension, with inflation. It is not a secret that the Central Bank of Nigeria, CBN, had been exhausting our external reserves in its increasingly losing attempt to defend the naira. Devaluation of the currency, which is in the cards, is being postponed until after the elections next year because to do so now will be disadvantageous to the President. But, in economics, as in most other aspects of life, “a stitch in time saves nine”. And as Arthur Burns, late former Chairman of the US Federal Reserve Bank (America’s own Central Bank) had observed during his tenure under President Nixon, “if you allow an untenable economic situation to persist for too long, you will suddenly find that there few good options left”.

The Central Bank is draining our external reserves, to keep the naira artificially strong; the Minister of Finance has also proposed next year’s budget based on that fuzzy figure. Yet, both the CBN Governor and the Minister know that N160 will not be sustainable beyond Election Day. They might think that the nation can afford to wait until February next year. That would constitute a fatal misreading of the changes in the global economy.

Harold Wilson, former Prime Minister of Great Britain, once told the world that “A week is a long time in politics”. Today, another Prime Minister or President could easily announce that “a week is a long time in a nation’s economy”. And, he would be making sense. The week the United States of America exported its first cargo of shale oil to Europe marked the beginning of the end of the Organisation of Petroleum Exporting Countries, OPEC, to which Nigeria belongs and which at one time held the world in a vice grip.

The United States, by the time we hold elections next year, would have surpassed Nigeria as an oil exporter; even Angola might have overtaken us and more countries are discovering and producing their own crude everyday.