Should oil prices continue to decline and fall below Nigeria’s Medium Term Expenditure Framework (MTEF) benchmark of $60 per barrel, the impact on the country’s economy could include the naira depreciating to $380/$, analysts at Financial Derivatives Company (FDC) have predicted. The experts also forecast that such a steep drop in oil prices will negatively affect key economic indicators like the external reserves and the country’s economic growth forecast.
Specifically, they said: “Although Nigeria remains oil production sensitive relative to price, an oil price below the MTEF oil benchmark of $60pb distorts the fundamental pillars of the budget plan. In addition, a possible cut in Nigeria’s oil quota by 200,000bpd could deal a significant blow to Nigeria’s fiscal consolidation efforts.”
“This will force the government to revise its spending, possibly pulling the economy into a technical recession. This will weigh on key indicators such as the economic growth forecast of 3.01% in 2019, external reserves will move south of $40bn and exchange rate will depreciate by at least 5.4% to N380/$.”
“This is also expected to widen Nigeria’s budget deficit, exerting more pressure on Nigeria’s current debt profile and debt servicing obligations.” Global oil prices have fallen from a high of $86 per barrel last October, to $59.80pb at the end of November, the sharpest monthly decline in over five years.
Source: New Telegraph