Raising Oil Price Benchmark Will Scuttle Fiscal Discipline Regime

LEAD Consultant to the Economic Community of West African States (ECOWAS), Dr. Ken Ife has raised the alarm that an increase of oil benchmark price for 2013 budget would undermine the fiscal discipline programme being pursued by Minister of Finance and Co-ordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, and worsen inflation, even though the recommended $82 looks realistic.The House of Representatives had, last week, picked holes in the 2013-2015 Medium Term Expenditure Framework (MTEF) and recommended an increase in the crude oil benchmark price for the 2013 budget from $75 to $82 per barrel.The hike is expected to increase the federation revenue earlier pegged at N7.3trillion by N0.6trillion with the Federal Government's share increasing from N3.561 trillion to N4.137 trillion.But Ife, a visiting professor of UGSM-Monarch Business School and University of East London Business School, said the decision would scuttle the country's ability to save money via SWF, increase the rate of inflation and destabilise the new fiscal discipline regime.'The impact of downgrading the benchmark is to give the Finance Minister, Dr. Ngozi Okonjo-Iweala, the flexibility she needs to control the expenditure. Recurrent expenditure must be budgeted but more money can come from excess crude and factored into capital expenditure.'We have achieved about 30 per cent of capital expenditure, while recurrent is below 70 per cent. Nobody ever believed we could achieve the benchmark. The game plan is to starve the budget of funds, to discipline consumption, so that figures can continue to look good.'Once you increase crude benchmark price, you will throw up more money to be allocated. Once that happens, they will demand that part of the money be allocated to recurrent expenditure of the balance sheet. That is the disadvantage. So, it is not in the interest of the country for the National Assembly to push the benchmark up.'Ife observed that increase in the benchmark would increase surplus income that would eventually find its way to recurrent expenditure because 'new capital projects may not be introduced where it will be spent.'That will worsen inflation; inflation comes from recurrent expenditure because it pumps a lot of money into circulation. That will not give room for prudence. And if, perhaps, there is a crash in oil market in the middle of the year, the country will be in trouble. What many don't realise is that we receive money on monthly basis to finance the budge. We are not budgeting on money that is in vaults; we finance as we go. We even need buffer to pick up some potential rise in subsidies.
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