The Nigerian economy has significantly underperformed in the first quarter of 2015, latest economic data shows.
Africa’s largest oil producer surrendered to several months of battering from negative oil price shocks and political uncertainty, as economic growth slowed to 4.6 percent this quarter, versus 6.2 percent in Q1 2014, according to in-house estimates.
Oil prices have fallen 51 percent to $57 per barrel today, despite a short-lived rally from $46 to $62 between January and February 2015.
In February 2015, excessive dollar demand pressure and volatility in the exchange rate forced the Central Bank of Nigeria (CBN) to abandon its official auction window for the interbank forex market. This effectively devalued the naira by 16 percent to $1/N197.
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Earlier this month, the 2015 Budget went through a final round of legislative reviews (but remains unpassed) leading to a $53 oil price benchmark and further spending cuts.
Already the government ran a N100 billion deficit in January 2015, according to CBN economic report released in March.
Oil production figures have also come short of the budget assumptions as the oil sector produced 1.9 million barrels per day (mbpd) in January, compared to 2.3 mbpd assumed in the 2015 budget.
Analysts at Lagos-based investment bank FBN Capital, say there are “serious fiscal implications” for the oil production shortfall, given the oil price decline and the naira devaluation.
Allocations to the three tiers of government have been visibly hit, as the nation’s revenue profile tested new lows in the quarter.
The Federation Accounts Allocation Committee (FAAC) disbursed N500 billion and N522 billion as overall receipts in January and February respectively, with the share of oil receipts falling to 83 percent and 76 percent.
Earlier in February, accountant-general of the federation, Jonah Otunla, admitted to a “substantial loss in revenue” as a result of the massive oil price decline.
Lagos-based economist, Bismarck Rewane, says revenue would have been “sharply lower” but for the naira devaluation effect from which some exchange rate gains accrued to the government purse.
International investors may have factored in the economy’s underperformance, judging by recent ratings revisions by Standard and Poor’s (S&P) and Fitch Ratings.
S&P downgraded Nigeria’s credit rating to B+ from BB- in March, citing the impact of political tensions and oil price declines on the economy.
Fitch Ratings revised Nigeria’s long-term outlook to ‘negative’ from ‘stable’ but affirmed the country’s BB- rating.
However, it is not all gloomy for Nigeria, as most negative outlooks on the economy are linked in the short term to the election uncertainties.
For instance, Paul Gamble, Director at Fitch Ratings, writes that a “smooth electoral process and reduced political uncertainty” could lead to Nigeria’s outlook returning to stable.
Also, expectations at the CBN monetary policy committee (MPC) meeting for March, are that the end of the Presidential elections would bring “expected improvement in business confidence.”
One MPC member believes that the second quarter of 2015 would see a transition from politics to policy management, with resultant benefits for the economy.
Akin-Olusoji Akinyele
