Nigeria’s benchmark oil grade rallied to fresh high of $74.44 a barrel, the strongest since Nov. 27, 2014.
“It’s a positive development for Nigeria as foreign receipts will increase which will help the oil dependent economy; also, It will help increase foreign reserves, protect the value of the naira and if judiciously utilised will impact the common man,” Adeola Adenikiju, Director, Centre for Petroleum and Energy, University of Ibadan said.
Production cuts by Organisation of Petroleum Exporting Countries (OPEC) and Russia over the past 16 months have helped crude prices rally, with the latest increase also tracking rising geopolitical risks to supplies, from Venezuela’s economic spiral to the risk of the US re-imposing sanctions on Iran.
“The Middle East is the highest concentration of the major oil producing countries, so any issues or tensions there will affect oil supply leading to higher price,” Abayomi Fawehinmi, an energy analyst at a Lagos-based consulting firm said.
The recent rally in global oil prices and stable production has boosted public revenues, helping the economy expand for the first time since 2015.
“Oil is a volatile commodity; It’s important we have a saving mechanism so our economy will be strong to survive any shock and reduce our reliance on increasing debt which IMF said is a major problem,” Adenikiju who is also a member of Monetary policy committee of Central of Bank of Nigeria said.
The International Monetary Fund (IMF) warned this week that about 40 percent of the low income countries are on a high risk of distress following increase in public debt.
The Fund’s Assistant Director, Fiscal Affairs Department, Catherine Pattillo, said this on Wednesday in Washington D.C. at the on-going IMF/World Bank Spring meetings.
She advised the Nigerian government and other countries to deliver on their fiscal plans for adjustments and use borrowed funds for high return investments.
“I think we can all agree that for Sub Saharan African countries that sustained development and increasing per capita income, which is built on macro stability is the main priority and IMF has been working with African countries to help build tax capacity so that countries can sustain levels of public debt and also so they can mobilise spending for health, education, infrastructure,” Pattillo said.
Although relative to Gross Domestic Product (GDP), the country’s debt level remains low by global standards, but it has put a strain on government revenues due to associated high debt service cost.
Nigeria’s external debt rose to $18.91 billion (N5.787 trillion) as at the end of December 2017, while domestic debt rose to $41.142brillion (N12.589 trillion), bringing the total debt stock of the country to N21.725 trillion ($70.92 billion), latest data released by the Debt Management Office (DMO) has shown.
Former Coordinating Minister of the Economy and Minister for Finance Ngozi Okonjo-Iweala estimated that Nigeria needs N10.63 trillion ($67 billion) annually to build hospitals and schools, fix the energy sector, and repair bridges and roads.
Though the country budgets an average of $5.9 billion to fund infrastructure yearly, endemic corruption, nepotism and poor implementation have ensured little progress.
In contrast to international benchmarks of 70 per cent, Nigeria’s core infrastructure stock is estimated at only 20-25 per cent of GDP, the equivalent of less than $100 billion in 2012, the reason for Nigeria’s poor global competitiveness despite its stature as Africa’s biggest economy becomes more glaring.
Oil production hit 1.8 million barrels daily in April 2018, representing a 50 percent increase from the 1.2 million barrels produced in the thick of militant attacks, according to the most recent OPEC data.
“Although oil price is rallying, we should learn from past experience and create a stabilization system such as the sovereign wealth fund which will help us in funding infrastructure,” Adenikiju concluded.
DIPO OLADEHINDE
