Government will cut out some planned spending altogether
Nigeria has cut back its spending plans for next year, Finance Minister Shamsuddeen Usman said on Friday, as falling global crude prices erode revenue forecasts in the world's eighth biggest oil exporter.
The 2009 budget in Africa's most populous nation had been expected to go before parliament last week, but a sharp drop in oil prices over the past three months has played havoc with the assumptions on which the spending plans are based.
"Clearly, the (2009) budget has been reduced downward and there have been a number of very serious measures taken to reduce expenditure," Usman told reporters after an extraordinary cabinet meeting to discuss the budget.
He said President Umaru Yar'Adua would present the budget proposal to parliament in the coming days and declined to give any further details before then.
Nigeria saves any oil revenue above a benchmark oil price into an excess crude account, a pillar of IMF-backed reforms meant to guard against price volatility on world markets and help it to save money.
Next year's budget is currently based on projected oil production of 2.3 million barrels per day (bpd) at a benchmark price of $62.5. But a slide in oil prices in recent weeks has made that benchmark figure look less realistic.
Fears of global recession have depressed oil demand in the United States and other industrial nations, driving prices down by more than 50 percent from their peak above $147 a barrel just three months ago. It was trading at just over $70 on Friday.
Junior Finance Minister Remi Babalola said this week that the benchmark crude price would be affected by the global situation. One Nigerian newspaper reported the figure would be below this year's $59 and could be as low as $45 per barrel.
Local newspapers have said the government will cut out some planned spending altogether, such as the purchase of cars and overseas training for civil servants, while some ministries would have no allocations at all in the 2009 budget.
Transport Minister Diezani Alison-Madueke was quoted on Friday as saying the global crisis could delay the rehabilitation of thousands of kilometres of roads.
"The global meltdown will probably not assist ... because I imagine funds will be even further depleted in terms of budgetary allocations. So we are also looking at bond financing," several newspapers quoted her as saying.
Bankers say African states are unlikely to get the sort of terms on borrowing they have enjoyed in recent years, making financing via capital markets an expensive option.
Less money for cash-hungry ministries could raise political risk in Nigeria, a frontier market which has been a darling of private equity and hedge fund investors in recent years.
"Falling (oil) prices in the past have corresponded with increased political tensions as it puts pressure on all the more opaque areas of governance," said Antony Goldman, an analyst at London-based risk consultancy PM consulting.
But he said a lower oil price could also spur reform.
"When prices are high and revenue is buoyant, the safe option is to avoid radical measures; but when falling prices make it hard to maintain the status quo, the balance of risk shifts: do nothing increasingly is not an option."