Reduced expenditure ‘solution to falling oil prices’

The federal government needs to reduce its recurrent expenditure and cut wastages to be able to cope with the revenue decline that accompanies fall in crude oil prices, a financial market expert told TheCable on Thursday.

They also noted the need for the diversification of the country’s revenue base.

The experts, who spoke in separate telephone interviews, said Nigeria should grow its tax revenue so that the country is not largely dependent on oil.

Oil, a major source of energy in Nigeria, is the mainstay of the Nigerian economy, and when its value plummets, as has happened in the past few weeks, the fears so generated lead to speculations that the country is broke.

This is one insinuation that has been denied by Ngozi Okonjo-Iweala, the minister of finance and coordinating minister of the economy.

“We are operating an economy that depends on a product that fluctuates with oil price and we don’t have the right to control the price,” she said on Tuesday.

“Nigeria, is faced with fluctuations in quantity and price of oil, which has negatively affected the amount paid into government coffers. But does that mean that the country is broke? We still have resources that we depend on; we still have the ability to tax.

“Sometimes, things need to be a little tighter, easier and we just have to weather it and manage ourselves but that does not amount to the country being broke.”

The slide in the price of crude oil  resulted in a drop in Nigeria’s September revenue to N502.09 billion from the N601.64 billion generated in the previous month. That’s nearly the loss of N100 billion.

Commenting on the situation faced by the country, Johnson Chukwu, chief executive officer Cowry Asset Management Limited, said a country can be said to be broke when its revenue is not able to cover its  basic cost.

“A country is broke when it can not meet its current expenditure or operating cost and we are not in that position,” Chukwu said.

“If  the foreign exchange earnings and reserves are not sufficient to meet its import needs, then that calls for a need to borrow from external sources to be able to meet its obligations.”

But he thinks that while Nigeria has no control over crude oil prices, it can control a few other factors.

“To solve the problem of dwindling revenue, there is need to cut government expenditure in number of employees, subsidies and eliminate duplication of  duties,” he said.

“The federal and state governments should grow their tax revenues so that the country is not largely dependent on oil.”