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Strong oil prices trigger fear of fiscal indiscipline

Analysts have warned against financial indiscipline in the corridors of power. Speaking against the backdrop of the increase of the benchmark for oil price in the budget last week, they cautioned against fiscal indiscipline.


According to Yvonne Mhango, an analyst at Renaissance Capital, an investment bank, “Strong oil price may lead to fiscal indiscipline. The Senate passed a N4.972 trillion 2011 budget on 16 March 2011, which is almost 20 per cent bigger than that proposed in December 2010. Strengthening fiscal revenue, owing to a high oil price, and the fear that when new governors enter office they will spend aggressively, have raised concerns about loose fiscal policy post-elections, which would be inflationary.”

“This conjecture all depends on how fiscally responsible the president-elect turns out to be. Nevertheless, as fiscal management tends to be less disciplined when revenue flows are buoyant, the risk to inflation is real, which suggests monetary policy should be tightened,” Ms. Mhango added.

“The Central Bank governor, Lamido Sanusi, at the Monetary Policy Committee (MPC) Meeting, noted that the 2011 budget was not in accordance with monetary policy and did not exhibit the fiscal retrenchment that the MPC had expected. Instead, the proposed expenditure outlay was contrary and inconsistent with its goals of containing inflation, conserving foreign reserves, and maintaining low interest rates.”

The Senate passed the 2011 budget with a total projected spending of N4.97 trillion ($31.87 billion) on March 16, which is almost 20 per cent bigger than the proposed budget in December 2010.

This increase comes on the back of the stronger oil price, which led the Senate to pass the budget at a higher benchmark price of $75 per barrel (bbl), compared with $65/bbl initially.


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