Renaissance Capital, a firm of analysts, says the 2010 budget proposal suggests oil benchmark assumption is realistic. In its evaluation of the 2010 budget, Rencap called it "a relatively prudent assumption".
The benchmark price 2010 was set at $57 per barrel as against the $45 benchmark for 2009. The 'prudent assumption'
is derived from both the expected global demand rise, the current and expected level of oil prices for 2010 and the security stabilisation in the Niger Delta.
The report says while the oil production assumption for 2009 continues to exceed the actual level of output (2.29mn bpd vs 1.86mn bpd in October, based on OPEC data), "we note that the 2010 estimate is relatively closer to past (2.14mn bpd in 2007) and, potentially, future metrics, especially taking into account some stabilisation in the Niger Delta region".
President Umaru Yar'Adua proposed N4.08 trillion in the 2010 budget to the National Assembly, which RenCap says is characterised by supportive fiscal measures to accelerate economic recovery following the recent global meltdown.
The firm of analysts on the basis of the positive oil future forecast says it is reversing upward its initial output expansion target of 2.7 percent for 2009 given the likely turnaround in oil GDP expansion in 4Q09.
"We think the economy could grow in the 5.5-6.0 percent range in 2010, assuming sustained agricultural production, and the aforementioned favourable base effect, with oil-GDP growth being in positive territory for the first time in recent years".
Meanwhile, the Rencap report notes that there are signs of stimulus to support the economy in the post-global crisis period and following the endogenous shocks associated with the domestic financial sector, with capital spending rising 34.1 percent YoY.
"One needs to be cautious, however, because the efficiency and level of execution of previous budgets have been relatively poor".
The report says also that in sectoral terms, the budget focuses on the establishment of special intervention funds to provide credit facilities for commercial farming and other measures to revive the industry, coupled with a review of tariffs and fiscal incentives to enhance productivity in the real economy.
The report notes that rising fiscal deficit (4.4 percent/GDP based on its output forecast for 2010 vs an official target of 3.02 percent/GDP for 2009) could support some correction in the depressed yield curve in 2010 as the government incrementally taps domestic debt markets.
