Tuesday, 10 March 2020

NIGERIA'S ECONOMY UNDER THREAT AS OIL PRICES COLLAPSE

The staggering depreciation in Oil prices could not have come at a more disruptive and critical time for the Nigerian economy.

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Oil tumbled more than 30% overnight and now sits below $34 a barrel. These levels have not been seen since early 2016. The fall comes after Saudi Arabia announced massive discounts to its official prices for April as a response to the OPEC allies failing to reach a middle ground over deeper supply cuts. Oil prices are on a slippery decline with more negative headlines on the coronavirus outbreak compounding downside losses.

At this point in time it is difficult to pinpoint where the floor is on Oil which has depreciated over 43% since the start of 2020, and this is bad news for many emerging market energy producers including Nigeria.

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The country’s export earnings and government revenues will take a direct hit from the steep decline in Oil prices. This will hit foreign exchange earnings, the Central Bank of Nigeria’s ability to defend the Naira, and may even result in rising inflationary pressures. Questions will be raised over Nigeria’s ability to effectively implement the 2020 budget which has set the benchmark for Oil at $57 - with an Oil revenue goal of N2.64 trillion. If severely depressed Oil prices hit export earnings, reduce government revenues, weaken the Naira and stoke inflationary pressures, Nigeria’s economy will be under threat in 2020.

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