Global rating agency, Moody’s, yesterday, warned of a further contraction of the Nigeria, while it disclosed that the declining value of the naira would engender a marginal increase in Nigeria’s external debt to 5.2 per cent of Gross Domestic Product, GDP, by end of 2016 from 3.3 per cent in 2015.
This came as expert blamed the long awaited passage of the Petroleum Industry Bill, PIB, and lack of good governance to reasons for poor returns expected to cushion the effect of the downturn in the price of crude at the international market.
Moody’s, in a Global Credit Research report released in Dubai, cautioned that while the Federal Government of Nigeria should comfortably meet its financing gap over the next 12 to 18 months, increasing liquidity pressures, rising inflation and stagnant growth pose key challenges.
In the report titled, ‘Government of Nigeria: FAQ on Credit Impications of Naira Depreciation, Low Oil Price and Broader Economic Challenges,’ Moody’s said, “The Government of Nigeria (B1 stable) continues to face low oil prices, volatile oil production, a spike in inflation that has eroded purchasing power, foreign exchange scarcity and an economy that has entered technical recession.
“Moody’s projects stagnation in real GDP in 2016 and only subdued growth at 2.5 per cent in 2017.”
The rating agency projected a deficit of around 3.7 per cent of GDP in 2016 for Nigeria, compared to a deficit of 3.8 per cent deficit in 2015. Commenting on the development, Aurelien Mali, Vice President and Senior Credit Officer at Moody’s, said, “We expect that Nigeria will contain pressures on its public finances in the short term.
“However, there is greater doubt about the severity of the impact of these challenges, particularly on government liquidity and economic growth, over the medium term.”
Moody’s, however, noted that it views the recent devaluation of the naira as credit positive, stating that the new system should enable the naira to better absorb external shocks over time, while dollar availability should gradually increase.
“Moreover, the fiscal benefit of the depreciation and the current oil price, which is above the budgeted oil price, exceeds the loss in oil output,” it said.
Moody’s disclosed, however, that the depreciation implies a material loss in purchasing power given import-price inflation, adding that it expects inflation to accelerate to 18 per cent by year’s end, before falling to an average of 12.5 per cent in 2017, based on the recent two percentage point hike in the Central Bank’s policy rate to 14 per cent.
Moody’s said, “States and local governments will benefit from the naira depreciation, offsetting the negative impact on oil production from the recent attacks in the Niger Delta. Moody’s expects authorities to reduce spending if revenues under perform.
“Moody’s notes that attacks on pipelines and key energy infrastructure in the Niger Delta have cut oil production to historic lows. If oil production stagnates at its current, or lower level during the rest of the year, the expansionary spending envisioned by the current budget will be at risk, which would hurt growth.
“However, the Central Bank of Nigeria has sent strong signals to the market that it will prioritize stemming inflation over promoting growth, as well as supporting the return of foreign capital.”
Meanwhile, a renowned Petroleum Economist and President, Nigerian Association for Energy Economics, NAEE, Professor Wumi Iledare, has attributed non-passage of Petroleum Industry Bill, PIB, poor governance among others as reasons for the country’s recession.
According to the University don, “The uncertainty in the Petroleum industry, has brought about zero activities in the petroleum industry, which has in turn resulted to zero revenues that should have supported the economy in a time as this.
“There is no money because of the low crude price, production level is down; and there is no activity ongoing in the oil and gas business. It is a recipe of disaster.”
The Drop in US Crude Oil Inventories Boosted Oil Prices on Wednesday
Crude oil prices rose on Wednesday following a decline in US crude inventories last week.
The American Petroleum Institute (API) had reported that United States crude oil inventories declined by 5.3 million barrels in the week ended January 22, 2021, more than a reduction of 430,000 barrels predicted by a Reuters poll.
The unexpected decline, coupled with slowing new COVID-19 cases in China, the world’s largest importer of crude oil, boosted oil prices on Wednesday.
Brent crude, against which Nigerian crude oil is measured, rose by 41 cents or 0.7 percent to $56.32 per barrel.
The U.S. West Texas Intermediate (WTI) crude oil also gained 56 cents or 1 percent to $53.17 a barrel.
“WTI is slightly firmer on the back of a larger-than-expected draw in US crude inventories reported by the API, which is offset by builds in gasoline and distillates,” said Vandana Hari, oil market analyst at Vanda Insights.
The data, however, showed petrol inventories grew by 3.1 million barrels in the week, more than experts projected.
Similarly, API data revealed that distillate fuel inventories that include diesel and heating oil, jumped by 1.4 million barrels, far higher than the 361,000 barrels decline predicted. However, refinery runs declined by 76,000 barrels per day.
“Market participants are now in ‘wait and see’ mode, wanting to see how lockdowns evolve in the coming weeks and months, and how successful countries are in rolling out Covid-19 vaccines,” ING economics said in a note.
COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020
Nigeria’s oil revenue declined by 41.44 percent in the first nine months of 2020 to $2.033 billion, according to the latest data from the Nigerian National Petroleum Corporation, NNPC.
This represents a decline of 41.44 percent from $3.47 billion filed in the same period of 2019 when there was no COVID-19.
In the September 2020 edition of NNPC’s Monthly Financial and Operations Report (MFOR), revenue from oil and gas rose by 16 percent to $120.49 million in the month of September, a 66 percent or $234.81 million drop from $355.3 million posted in the same month of 2019.
The global lockdowns caused by the COVID-19 pandemic plunged Nigeria’s crude oil sales and global demand for the commodity. This was further compounded by Nigeria’s high cost of production compared to Saudi Arabia, Russia and others that were offering discounts to boost sales during one of the most challenging periods in human history.
Experts like Prof. Yinka Omorogbe, President of Nigeria Association of Energy Economics, NAEE, were not surprised with the drop in earnings given the effect of COVID-19 on the world’s economy.
She, however, called for the revamp of the nation’s petroleum sector laws and diversification of the economy away from oil revenue dependence. She said “Covid-19 made 2020 a very hot year and it battered the oil industry internationally and we are not an exception; so we could not have been unaffected”.
She also said the effect of the fall “is definitely a wake-up call; we have to diversify, strengthen our other resources and capabilities”.
Omorogbe, a former NNPC Board Secretary, urged the government and the operators in the sector to look inward and think strategically, stating: “think medium term, think of where they want to be and the government, above all, must think of how best we can utilize our resources, so that we can achieve our objectives once we know and define them.
“It is a clear wake-up call, if not we will just sit here and find that we have become one of the poorest nations in the world”, she noted.
Crude Oil, Other Commodities Closing Price for Monday
Brent crude oil, Nigeria’s crude oil benchmark, gained 47 cents to $55.88 per barrel on Monday, while the US crude oil expanded by 50 cents to $52.77 per barrel.
Gold for February delivery fell $1 to $1,855.20 an ounce. Silver for March delivery fell 7 cents to $25.48 an ounce and March copper was little changed at $3.63 a pound.
The dollar fell to 103.80 Japanese yen from 103.83 yen. The euro fell to $1.2139 from $1.2167.
Wholesale gasoline for February delivery rose 1 cent to $1.56 a gallon. February heating oil rose 2 cents to $1.59 a gallon. February natural gas rose 16 cents to $2.60 per 1,000 cubic feet.
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