Nigeria May Post Current Account Deficit in 2015
Nigeria’s weakening fiscal buffers as a result of the sustained low oil price may result in a current account deficit in the country’s balance of payments this year.
Managing Director/Head, Africa Research, Standard Chartered Bank, Razia Khan made the prediction during an interactive session with journalists in Lagos yesterday. She also forecast that the country would raise capital from the international debt market by the second half of the year to meet some of its obligations.
The economic analysts stressed that policy makers in the country failed to effectively utilise the opportunity created by the high crude oil prices in the past years, saying that it would be difficult for the country to rebuild fiscal buffers in a low oil price environment.
Khan however predicted that crude oil price would average at $76 per barrel by the second half of the year.
“We are going to see oil prices moving higher and there is going to be some overshooting in the second half of the year. We see oil prices averaging $76 per barrel over the course of this year and we think that this means that by the second half of the year, there is a likely hold that oil prices would be $80 to $90 per barrel.
“But that would be only short-lived. We shouldn’t discount the fact that this a very deliberate strategy on the part of Saudi Arabia in particular, to move away from the price targeting. So, for countries for Nigeria, the important take away is that we have moved away from that world of triple digit oil prices and what we would see going forward, is more like a double digits oil prices scenario. “We know about the extent to which Nigeria failed to capitalise properly in the boom years in terms of oil production when the oil prices were high. So, it is not going to be that easy necessarily given the demands from the fiscal side, to rebuild fiscal buffers in a low oil price environment,” she explained.
According to Khan, given the willingness by the federal government not to crowd out the domestic market so much with excessive domestic borrowing, the country might borrow from the international debt market before the end of the year.
She added: “We have obviously seen the passage of the budget and it is unlikely that any of the assumptions are going to change very dramatically. If we are right in thinking that oil prices will bounce back by the second half of the year that will certainly provide a certain element of reprieve in terms of acting as a buffer and there may not need be as much as borrowing as envisaged.
“But I think anyone looking at Nigeria’s situation would say there is likely going to be a case for external borrowing. What we don’t know yet is how open and favourable the external debt market is given what might happen at the Federal Reserve.”
She also described the fuel subsidy policy as a drain on the economy policy, saying that it cost is a burden on the economy.
While calling for the removal of fuel subsidy, Khan said: “It takes away resources from the poor and rewards those who consume more fuel, which are mostly wealthy Nigerians. So, just from a perspective of having a tax regime that isn’t regressive, there are very serious reasons for the eradication of that subsidy.