Godwin Emefiele, governor of the Central Bank of Nigeria forecasts crude oil prices will stabilise around $50 per barrel, below the 2019 budget benchmark crude price of $60 per barrel.
This implies either less government spending or more government borrowing, either way, the road ahead for Africa’s most populous nation is bumpy.
He said this during the first Monetary Policy Committee press conference held Tuesday in Abuja.
In a move widely expected by analysts the CBN has left interest rates unchanged at 14 percent for January.
Lower oil price offers Nigeria an opportunity to exit its costly fuel subsidy regime.
Africa’s biggest crude oil producer faces uncertain economic times ahead, with the International Monetary Fund lowering the country’s growth projection for 2019 to 2 percent due to a change in oil’s outlook and weakening global expansion. There are also signs of rising inflationary pressures, which partly informed the central bank’s tightening of monetary policy “especially as government spending increases ahead of the presidential elections” analysts at FXTM, a forex trading company said in emailed note to subcribers.
“While a rate hike will tame inflationary pressures, it may end up impacting growth by discouraging consumer borrowing and businesses to reduce investments” FXTM analysts added.
It is widely known that Nigeria remains on a mission to diversify away from oil reliance, the nation’s short-medium term outlook hangs on oil’s performance.
Benchmark Brent crude price has rallied from its 02 January low of $54.91 per barrel to $60.90 as at 17 January, 8:20 local time and down to $60.50 at 17:00. It ended at $62.70 on 18 January but further declined to $61.55 per barrel as at 16:28 local time. It has on average hovered around $60 mark since 10 January, according to data obtained from NASDAQ, an American stock market.
Lower oil price may be good for Nigeria’s long-term economic growth because it often forces the Nigerian government to undertake painful necessary reforms.
This scenario played out in 2016 when oil prices fell below $40 per barrel in the first three months of that year. Low oil prices cut revenue in half. The situation was further worsened by the destruction of oil and gas infrastructure by Niger Delta militants whose campaign shut in a quarter of Nigeria’s oil production.
“Higher crude oil price will affect the price of petroleum products in the international market, which means Nigeria will pay more to subsidise the import of petrol” Diran Fawibe, chief executive officer of International Energy Servies Limited said on a phone interview.
Oil subsidy or under recovery as the Nigerian National Petroleum Corporation (NNPC) prefers to call it, has been rising astronomically within the last 24 months. A recent BusinessDay investigation found that between 2006 – 2015, the NNPC claimed N170.60 billion as under-recoveries while it claimed N632.20 billion in twos alone (2017 and 2018), a 217 percent jump.
Nigeria has budgeted $1 billion to sustain the subsidy regime in 2019 budget.
