Nigeria’s Recession Buffer Weak as Coronavirus Drives Oil Near $47/bbl
With the impact of the coronavirus taking a toll on oil demand and the economy in general, the fear of another recession appears to be imminent as oil price dropped to $53.71 per barrel, amidst falling external reserves and excess crude account (ECA).
Indeed, oil prices are trading below the Federal Government’s benchmark at $57/barrel for the 2020 budget, thus posing a threat to the 2020 budget, which was signed by the President Muhammadu Buhari in December, on the assumption of oil production of 2.18 million barrels per day (bpd).
Similarly, Nigeria’s latest Excess Crude Account balance, according to a statement from the Office of Accountant General of the Federation, was put at $71.81Million, while movement in reserves showed that the country’s reserves stood at $36.46Billion, down by $2.07billion from $38.53Billion in which it opened the year.
With an earlier projection by Citigroup that Brent Crude may slide to as low as $47/barrel in the wake of the coronavirus that is yet to be contained. The Federal Government has been exploring various means of generating revenue to buffer the effect of unstable oil prices through increment in value-added tax (VAT) review of extant legislation among others.
Brent oil price yesterday, 26th of February 2020, dropped to $53.80 at about 3:41 pm GMT, while Nigeria’s Bonny Light stood at $56.15. Members of the Organised Private sector (OPS) equally expressed concerns about growing insecurity in the country, saying an unsafe environment poses a major risk to investment, even as Nigeria recorded no improvement in the global security perception.
Yesterday also, analysts at SBM Intelligence said the Nigerian economy is at risk of a recession, as the outbreak has resulted in a drop in crude oil prices.
In a report titled, “The potential effects of coronavirus on the Nigerian economy,” the research company said Nigeria’s trade with China would also be affected. “As global oil prices trend lower at $57/ per barrel as of mid-February, the subsistence of the coronavirus will continue to dampen appetite, which will put a lid on oil prices well into March.
“If oil demand continues to fall with no OPEC intervention in the form of production cuts, tightening supply, a country like Nigeria will be negatively impacted by the downward price trend. “The country risks another recession if the oil price continues to fall and other production and sales activities between China and Nigeria remain weak.
Also, Citi slashed its forecasts for commodity prices across the board, with crude oil getting the steepest downgrade, the investment bank said in a note, as carried by Bloomberg.
According to the Lagos Chamber of Commerce and Industry (LCCI), the economy is not growing fast enough to create opportunities for the citizens. The chamber noted that the economy is still vulnerable to external shocks notably fluctuations in global oil prices.
“This partly explains why two global credit agencies – Moody and Fitch, recently downgraded our economic outlook from stable to negative on the back of slow fiscal growth and increasing vulnerability to exogenous shocks. We, therefore, urge the government, as a matter of urgency to intensify diversification efforts and embrace structural reforms to attract private investment in stimulating economic growth.