Bud­get cri­sis in 2019 stares

Business a.m. - - FRONT PAGE - Moses Obajemu

THERE ARE FEARS that Nige­ria and other African pro­duc­ers of crude oil may ex­pe­ri­ence bud­get im­ple­men­ta­tion cri­sis in 2019 as their main for­eign ex­change earner, oil, is go­ing through a tur­bu­lent time

ARE FEARS that Nige­ria and other African pro­duc­ers of crude oil may ex­pe­ri­ence bud­get im­ple­men­ta­tion cri­sis in 2019 as their main for­eign ex­change earner, oil, is go­ing through a tur­bu­lent time in the in­ter­na­tional mar­ket.

Crude oil price (Brent) in Jan­uary 2018 was $69 per bar­rel and rose to $81 in Oc­to­ber. How­ever, ef­fi­cient pro­duc­tion by Amer­i­can oil com­pa­nies and some non OPEC pro­duc­ers has led to a glut in the mar­ket, forc­ing the price to fall. It is a story of sup­ply and de­mand - too much sup­ply and not enough de­mand.

Brent has been down as much as 2% to $58.31 but it is now trad­ing closer to $58.50. The price is on a los­ing streak not seen since the fi­nan­cial cri­sis. The price of Brent - and US light crude - has fallen more than 20% in Novem­ber.

With OPEC push­ing for pro­duc­tion cuts, Nige­ria may have to grap­ple with re­duced rev­enue against mount­ing ex­pen­di­ture and this may lead to pro­ject stop­page and fur­ther in­creases the fis­cal pres­sure.

Last week, Saudi Ara­bia’s oil min­is­ter, Mo­hammed Al Falilh was in Nige­ria to can­vass sup­port for pro­duc­tion cut from Nige­ria just as he toured other oil pro­duc­ing states. Rus­sian, a non OPEC pro­ducer has also agreed to cuts. Thus, the stage is set for the oil pro­duc­ers to im­ple­ment the cut.

An an­a­lyst, FSDH re­cently said a sig­nif­i­cant drop in either the price of crude oil or pro­duc­tion will di­rectly have a neg­a­tive im­pact on the fis­cal po­si­tion of the coun­try, in ad­di­tion to caus­ing ma­jor macroe­co­nomic in­sta­bil­ity, par­tic­u­larly in the ex­change rate and in­fla­tion rate. FSDH Re­search anal­y­sis of the HY1 2018 For­eign Trade Sta­tis­tics re­leased by the Na­tional Bureau of Sta­tis­tics (NBS) shows that crude oil ex­ports ac­counted for 80% of to­tal ex­ports.

“Oil rev­enue rep­re­sents a sig­nif­i­cant pro­por­tion of Nige­ria’s rev­enue. Lower rev­enue will mean the gov­ern­ment may not be able to un­der­take nec­es­sary cap­i­tal ex­pen­di­ture and will hin­der eco­nomic growth. It may also lead to a de­val­u­a­tion of the cur­rency be­cause of a drop in the for­eign ex­change sup­ply.

A ris­ing in­fla­tion rate will be as­so­ci­ated with cur­rency de­val­u­a­tion; and naturally, the mon­e­tary pol­icy re­sponse to a ris­ing in­fla­tion rate is to in­crease in­ter­est rates.

Th­ese likely sce­nar­ios will lead to an in­crease in fi­nance costs for both com­pa­nies and gov­ern­ment. An eco­nomic re­ces­sion is not far from th­ese de­vel­op­ments. Th­ese were the events that hap­pened in Nige­ria from 2014 through to 2017”’ the FSDH re­port said.

Sim­i­larly, the United States’ En­ergy and In­for­ma­tion Ad­min­is­tra­tion (EIA) ex­pects oil prices to de­cline in the com­ing months be­cause global oil in­ven­to­ries are ex­pected to rise slightly dur­ing the sec­ond half of 2018 and in 2019.

Ac­cord­ing to EIA, ex­pected in­ven­tory growth re­sults from forecast oil sup­ply growth out­pac­ing forecast oil de­mand growth in 2019. An­a­lysts be­lieve this can only bring more prob­lem for the coun­try.

Ac­cord­ing to EIA, ex­pected in­ven­tory growth re­sults from forecast oil sup­ply growth out­pac­ing forecast oil de­mand growth in 2019

L-R: Aig­boje Aig-Imoukhuede, ex-of­fi­cio,The Nige­rian Stock Ex­change (NSE); Olawale Oluwo, com­mis­sioner for en­ergy and min­eral re­sources, La­gos State; Oba Otudeko, past pres­i­dent, NSE; Mary Uduk, act­ing di­rec­tor gen­eral, Se­cu­ri­ties and Ex­change Com­mis­sion (SEC); Os­car N. Onyema, im­me­di­ate past pres­i­dent, African Se­cu­ri­ties Ex­changes As­so­ci­a­tion (ASEA)and CEO, NSE; Yemi Osi­banjo, vice pres­i­dent of Nige­ria; Abim­bola Ogun­banjo, pres­i­dent, The Nige­rian Stock Ex­change (NSE); Karim Ha­jji, new pres­i­dent ASEA and CEO, Casablanca Stock Ex­change; Aruma Oteh,vice pres­i­dent and trea­surer,World Bank; and Ye­tunde Ode­jayi, per­sonal sec­re­tary, deputy gover­nor’s of­fice, La­gos State, dur­ing the 22nd African Se­cu­ri­ties Ex­changes As­so­ci­a­tion an­nual con­fer­ence at Ori­en­tal Ho­tel, La­gos, re­cently

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