Stocks rose and the naira currency fell yesterday, as markets tried to digest plans by Nigeria’s finance minister to mitigate the unfavourable effects of the declining oil prices, which have significantly reduced government revenue since June.
The main benchmark index, the NSE – ASI rose by 0.3 percent to 35,488.80 points as stocks marked six straight days of gains.
The naira however closed at a new low of 173.20 against the dollar on Monday, down 1.21 percent in volatile trades, despite Central Bank intervention to prop up the currency, dealers said.
The regulator asked lenders to bid for $2 million each, in a move to shore up the local currency, but commercial banks avoided the forex auction as the Central Bank was restricting the re-sale margins to curb speculation.
As oil prices continue to erode the country’s revenue and investors proceed with sales of naira assets from bonds to equities. Finance minister, Ngozi Okonjo-Iweala made moves over the weekend to assure
jittery financial markets.
The Medium Term Expenditure Framework (MTEF) and the 2015 Budget proposal to the National Assembly have been revised in response to the depreciating oil prices, she said.
A benchmark of $73 a barrel is being proposed by the government to the National Assembly, compared to the earlier $78.
Government spending has also been tightened, especially on foreign travels and trainings, as part of several austerity measures introduced by the federal government.
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“The drop in oil prices is a serious challenge which we must confront as a country. We must be prepared to make sacrifices where necessary.
“But we should also not forget that we retain some important advantages such as a broad economic base, driven by the private sector and anchored on sound policies,” the minister told journalists in Abuja.
Analysts say markets had been seeking clarity from the country’s economic managers, and may react positively to the moves in the weeks ahead.
“The government is sending a message of calm to the markets and saying ‘look we have a game plan and are not behind the curve,” one market source said.
The ministry will propose to lower expenditure by 6 per cent to N4.66 trillion ($27 billion) in the 2015.
Crude oil production is expected at 2.27 million barrels of oil per day next year, generating revenue of N6.8 trillion, Okonjo-Iweala said. This year’s budget was based on output of 2.39 million barrels a day.
Foreign currency reserves stood at $37.6 billion on Nov. 13, down from $39.5 billion at the end of September and $44.9 billion a year ago.
Yinka Abraham & Dan Ojabo
