Contrary to the fears entertained by most Nigerians that the $38 per barrel oil price benchmark for the 2016 budget signed into law recently by President Muhammadu Buhari may not be practicable, a financial analyst, Mr. Johnson Chukwu has said that problem of volume variance and not that of price variance may be the only problem government will have with regards to the implementation of the 2016 budget.
Chukwu who made this position known in a chat with Primetime Reporters in Lagos the challenge the country would have was not in terms of price as according to him, oil had been selling above $40 adding that from the look of things, oil may remain above $40 for the remaining part of the year.
He however noted that the challenge the government would have in implementing the budget may be that of huge volume variance.
He said,” The budget is predicated on 2.2 million barrels per day, we are doing about 1.7 million barrels per day for now. We have also seen an increase in the spate of unrest in the Niger-Delta with pipelines being bombed, that may further reduce the volume of production. I have seen in the media that we are now producing about 22 year low. That is where the challenge will come from in terms of revenue projections of government.
“But if you talk about the price, I don’t think there is going to be any problem with the price. We are going to have a positive price variance and a negative volume variance but the negative volume variance will more than upstage the positive price variance that the projections which the government has made, that it will make about N860 billion from oil sales may be difficult to realize”.
On suggestions that this year’s budget may run till May 2017, Chukwu who is also the Managing Director and Chief Executive Officer, Cowry Asset Management Limited called on Nigerians to discountenance the statement which he called wild reminding them that there is a Fiscal Responsibility Act which terminates the budget in December of every year but gives the President power to extend the budget implementation till March of the following year.
According to him,” So, if we are talking about June as some people are saying, are we changing our Fiscal year? I think what we should be talking about now is that the government should start planning of the next year’s budget in earnest and roll over projects that were designed for this year that they were unable to implement because of the expiration of time.
“I think that is the appropriate thing to do unless we are going to change our Fiscal year to run from July to June which is not what I think they intend to do or they should go and change the Fiscal Responsibility Act to allow the President to extend the implementation of the budget to June but the law says the budget ends in December but that the President can extend the budget to 31st of March, beyond that, the President can no longer spend from the proceeds of the previous year’s budget”.
Asked if procurement will be a problem in the implementation of this year’s budget, he recalled that there is a Procurement law in place which had specified certain conditions under which government could procure items be it recurrent or capital expenditure saying he did not think anybody intended to change the Procurement Act.
“So, normally, I know that the procurement process usually slow down budget implementation but it was also designed to make sure that we get value for money in all government procurement. So, it is a trade off but I want to believe that because the law is in existence, public servants should take cognizance of the law and build it into their process so that it doesn’t lead to any delay in the implementation of the budget”.
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