CBN Calls for Independent Body on Oil Benchmark

Central Bank of Nigeria (CBN) Governor, Mallam Sanusi Lamido Sanusi, on tuesday urged the Federal Government and the National Assembly to learn from the Chilean experience by setting up an independent legal body that would be saddled with the task of setting the benchmark crude oil output and price to avoid the perennial rancour between both arms of government on budget benchmark every year.
Sanusi’s suggestion is coming on the heels of a similar recommendation made by the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, last month on the need to set up an independent body to determine the crude oil output and the benchmark price for annual budgets.
The CBN governor said the independent body of experts should be shielded from political interference and interests, stressing that several countries with a commodity price-based budget rule have also borrowed from the Chilean example.
His suggestion came as the CBN, also yesterday, resolved to leave the Monetary Policy Rate (MPR) at 12 per cent with a corridor of +/- 200 basis points, while retaining the Cash Reserve Ratio (CRR) at 12.0 per cent and the Liquidity Ratio at 30 per cent.
Sanusi, who read the communiqué of the Monetary Policy Committee (MPC), which met yesterday, also reaffirmed the committee’s support for maintaining the $75 per barrel proposed by the finance ministry for the 2013 budget, noting that this had become more critical on the back of evidence that output projections may have been overly optimistic.
According to him, “This idea that after going through a technical, detailed process, the Ministry of Finance comes out with a number and then the National Assembly sits down and says I don’t like this number and I want to increase it, is only possible because we’ve not institutionalised this process.
“So it will be very good to not just say you use a benchmark number but have a legal framework for determining a benchmark and clarity so that the decision is not political.”
He said: “By increasing the benchmark to N78 or N80 or N82, we always simply increase the amount of money that is spent, and reduce the amount of money that we save.
“And if for any reason, output underperforms, and we’ve already seen that with the floods, you will continue dipping into savings and therefore, reducing your fiscal flexibility and your ability to respond in the event of an external shock.”