The naira will experience more pressure due to slump in the crude oil prices, as the economy grapples with challenges from coronavirus pandemic. Agusto&Co stated this in its April 2020 edition of its macro report, ‘COVID-19 in Nigeria: Economic perspectives and mitigating the risks.’ Part of the report read, “We believe the naira will come under enormous pressure owing to the slump in crude oil prices from the soft commodity market due to the slowdown in global demand for crude.”
With governments of some of the World’s major economies enforcing a lockdown and the slump in international travels and local commute, it stated that the consumption of energy had shrunk materially which had led to a supply glut in the crude oil market. It added, “Furthermore, ego battles between Saudi Arabia and the Russians have led to the deterioration of the oil market, making a bad situation even worse. “Crude oil represents about 95 per cent of Nigeria’s export revenues and a downturn in the market for the commodity always has a ripple effect on the economy.”
The report said these shocks tended to spook the foreign exchange market leading to a depreciation of the naira and reactive demand management by the Central Bank to conserve foreign reserves. In January this year, it noted, the price of Bonny Light, the major variant of Nigeria’s crude production, averaged over $60 per barrel but had lost more than half that value by the end of the quarter. The report said, ‘The Federal Government of Nigeria has a benchmark crude price of $57 per barrel for the 2020 Fiscal Budget.
“Our preliminary forecasts have been built around an average price of $35 per barrel for the rest of 2020. Under this scenario, Nigeria’s oil & gas export proceeds may fall by half in 2020 to $25bn on year-on-year basis ($50bn;2019).