Senate Passes 2021-2023 MTEF/FSP

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•Pegs oil benchmark at $40 per barrel, exchange rate at N379/$1
•Oil prices surge, highest in nine months

Chuks Okocha and Emmanuel Addeh in Abuja

The Senate yesterday passed the 2021-2023 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP). In the approved MTEF and FSP, the Senate pegged oil benchmark at $40 per barrel and the exchange rate at N379 to $1.

The passage coincided with the rebound of international prices of crude oil yesterday, surging above the $50 per barrel mark, the highest since March when the market started recording a downward spiral, due to the COVID-19 pandemic and the price war between Russia and Saudi Arabia.

The passage of the document was sequel to the consideration of a harmonised conference report of the Joint Committee of the Senate and House of Representatives.

In his presentation, Chairman of the Committee on Finance, Senator Olamilekan Solomon Adeola (APC – Lagos West), said the Conference Report of the Senate and the House was a harmonised position of both chambers upon examination of the differences contained in the 2021-2023 MTEF/FSP document.

According to the lawmaker, the joint committee, after deliberations, recommended that daily crude oil production be pegged at 1.86mbpd with oil benchmark price at $40 per barrel. It also projected a Gross Domestic Product (GDP) growth rate of 3 per cent; inflation growth rate at 11.95 per cent while the federal government is expected to retain N7.99 trillion of the revenue from the Federation Account.

In addition, total federal government proposed expenditure was pegged at N13.58 trillion; fiscal deficit at N5.60 trillion; new borrowings N4.28 trillion (including foreign and domestic borrowing); statutory transfers at N484.4 billion; debt service N3.12 trillion; sinking fund N220 billion; pension, gratuities and retirees benefits N520.6 billion; total FGN expenditure N13.58 trillion; and total recurrent (non-debt) N5.66 trillion.

Personnel costs for Ministries, Departments and Agencies of government (MDAs) was put at N3.05 trillion; capital expenditure (exclusive of transfers) at N3.58 trillion; special intervention (recurrent) N350 billion and special intervention (capital) N20 billion.

Oil Prices Rise to Highest in Nine Months

The international prices of crude oil rebounded yesterday, surging above the $50 per barrel mark, the highest since March when the market started recording a downward spiral due to the COVID-19 pandemic and the price war between Russia and Saudi Arabia.

However, the recent surge seen in oil prices is largely attributed to a substantial drop in the United States’ crude oil inventories coupled with strong hopes that the country’s lawmakers will pass the latest stimulus deal.

Brent crude futures, Nigeria’s preferred measure and pricing model , gained 0.92 per cent to close at $51.55 per barrel and West Texas Intermediate futures increased by 1 per cent to trade at $48.30, trading at their highest levels since early March.

The most recent US crude oil inventory numbers excited many oil traders enough to increase their buying momentum, keeping both oil major benchmarks above $48/barrel.

The last time oil traded above the $50 region was on March 4, 2020, when it traded at $51.13 before the deadly blow dealt on the market by the lockdowns.

However, it is both good and bad news for Nigeria as crude oil accounts for half of the government’s income and about 90 percent of Nigeria’s foreign exchange earnings.

In contrast, given historical figures since March when the market was deregulated, Nigerians may pay more for petrol at the pumps from January.
Since the end of October, oil has gone up more than 30 per cent on the hopes of the rollout of COVID-19 vaccines, which has led to a sustained recovery in demand, but the market is still facing some near-term hurdles including more supply from OPEC+ next month.

However, oil prices are expected to rise to an average of $44 per barrel next year and $50 a barrel in 2022, up from an expected $41 in 2020, the World Bank said in its latest report on Russia.

According to the bank, the COVID-19 pandemic will continue to impact global oil demand, with consumption still below pre-pandemic levels next year while oil consumption is expected to remain around five per cent lower than in 2019 by the end of 2021.

Vaccinations in 2021 could put the global economy on a path to sustained recovery and to a decline in poverty, but risks are tilted to the downside, according to the bank.

To curtail the surging supply and curb the glut in the market, the Organisation of Petroleum Exporting Countries (OPEC) in agreement with its non-OPEC member allies, had agreed on production curtailments since May, which have positively impacted the prices.