UPDATE 2-Nigeria cuts benchmark oil price to $45 in '09 budget
(Adds minister, comment from economists)
LAGOS, Oct 20 (Reuters) - Nigeria has cut the benchmark oil price in its draft 2009 budget to $45 per barrel from $62.5 in the wake of sharp falls in world crude oil prices, signalling significant belt-tightening in Africa's second biggest economy.
The 2009 budget in the world's eight-biggest oil exporter had been due before parliament earlier this month, but a sharp drop in global crude prices has played havoc with the key assumptions on which the spending plans are based.
"We had to take a conservative position, saying $45 a barrel," Mohammed Sanusi Daggash, chairman of the National Planning Commission and a government minister, told reporters during a briefing in the main commercial city of Lagos.
"For us to come in and say we are going to have a budget with a benchmark oil price at $70 a barrel because we need the money, and the oil price now falls ... would totally destabilise the economy," he said.
Analysts welcomed the proposed benchmark, saying it should help Africa's most populous nation maintain a current account surplus through next year, although it would have a sharp impact on government spending.
"This is a major structural adjustment, which in some quarters might be considered to be overdoing it," said Bismarck Rewane, head of Lagos-based consultancy Financial Derivatives.
"But it is a responsible decision. It is conservative enough. It will mean a lot of belt-tightening," he told Reuters.
Standard Bank estimated the $45 benchmark would translate into a cut of more than 30 percent in budgeted oil revenue.
"It is broadly an excellent policy move," said Mike Hugman, an emerging markets strategist at Standard Bank.
"It will help to ensure that Nigeria maintains a fiscal and current account surplus through 2009 and, whilst it might cause growth to slow marginally, it will also reduce inflationary risks going forward," he told Reuters.
NO MORE FRIVOLITY
Nigeria largely escaped the initial fallout from the global credit crisis.
Oil exports mean it is sitting on foreign exchange reserves of more than $60 billion and it is essentially a cash economy, meaning its banks -- which continue to post record profits -- are much less exposed to the sort of credit risk seen elsewhere.
The West African country saves any oil revenue above the benchmark oil price into an excess crude account, a pillar of IMF-backed reforms meant to guard against price volatility on world markets and help it to save money.
Next year's budget had been based on projected oil production of 2.3 million barrels per day (bpd) at a benchmark price of $62.5, compared with $59 in the 2008 budget.
But fears of global recession have depressed oil demand in the United States and other industrial nations, driving world prices down by more than 50 percent from their peak above $147 a barrel just three months ago.
Nigerian newspapers have reported that tighter spending will mean some ministries receive no budget allocation at all for next year, while spending on things like the purchase of new cars or overseas training for civil servants will be cut.
"Frivolities that will not add to value in government are being done away with," Daggash said.
The adjusted budget proposal is expected to go before the National Assembly in the coming days. (Editing by Ron Askew)
