- Nigeria Worries as Oil Prices Tumble
Fears about early resuscitation of Nigeria’s economy has heightened as oil prices tumbled at the global market on Friday by more than three per cent after the Organisation of the Petroleum Exporting Countries said October output reached another record of 33.64 million barrels per day, up 240,000 bpd from September.
Nigeria, which largely depends on proceeds from its oil exports, is currently in economic recession, having recorded negative growth rate in its Gross Domestic Product in two consecutive quarters. This is reflected in drastic drop in income, employment, manufacturing and retail sales.
Although the Federal Government said it was already taking steps to take the country out of the economic mess, the continued militant attacks on oil installations in the Niger Delta and the new development in global oil market could frustrate the government’s efforts, according to experts.
Crude futures have wiped out gains made since the end of September when OPEC said it would agree to cut oil production to shore up persistently low prices, according to Reuters.
It said in a report on Friday that while investors had been sceptical that a deal to cut or freeze oil output levels would be reached at an OPEC meeting on November 30, an increasing amount of data had underscored a global skew towards oversupply.
It also noted that following the latest data, the cartel would have to trim up to a million barrels per day of output to make good on its promise to reduce production to between 32.50 million bpd and 33.0 million bpd.
It quoted a trader at Tyche Capital Advisors in New York, Mr. Tariq Zahir, as saying, “The next couple of weeks, even if they get a deal done, there’s so much oil coming to the market. Prices deserve to be here, maybe even a little lower.”
With oil price crashing to less than $50 per barrel, Nigeria’s production output has tumbled over 400,000 barrels due to militancy activities in the Niger Delta region. Oil production plummeted to 1.69 million barrels per day in the second quarter of 2016, down from 2.11 million barrel per day in the first quarter, with oil-based GDP contracting by 17.5 per cent in quarter two compared to 1.9 per cent in the first quarter.
As oil revenues dwindle, Nigeria has resorted to desperate measures including using crude to offset its debts.
For instance, the Federal Government recently said it had reached an outline settlement to resolve a protracted dispute with Western energy companies, under which the groups would be paid $5bn to cover exploration and production costs.
A report by Financial Times said Royal Dutch Shell, ExxonMobil, Eni, Chevron and Total had signed deals relating to the settlement of costs incurred between 2010 and 2015, as they also sought to forge new financing arrangements for their joint ventures in Nigeria.
The settlement, which would be a haircut on the over $6bn the oil majors claimed they were owed by Nigeria, would need the approval of two government bodies and the final sign-off from President Muhammadu Buhari, the report added.
Meanwhile, international Brent crude futures traded at $44.34 per barrel on Friday, down $1.50, or 3.27 per cent, its lowest since August.
The US West Texas Intermediate futures CLc1 were down by $1.51, or 3.4 per cent, to $43.14 per barrel.
The International Energy Agency has said the supply overhang could run into a third year in 2017, should OPEC fail to act.
In its monthly oil market report last Thursday, the IEA said global supply rose by 800,000 bpd in October to 97.8 million bpd, led by record OPEC output and rising production from non-OPEC members such as Russia, Brazil, Canada and Kazakhstan.
IMF Staff Completes Virtual Mission to Lesotho
Lesotho has been struggling with the fallout from the pandemic and a sharp decline in revenues from the Southern African Customs Union (SACU); The authorities and the mission team made significant progress in their discussions on policies that could be supported by the IMF under a financial arrangement.
A team from the International Monetary Fund (IMF), led by Mr. Aqib Aslam, conducted a series of virtual missions, most recently from September 7 to October 15, 2021, to discuss the authorities’ economic and financial program and their request for IMF financial support.
The authorities and the mission team had productive discussions on policies that could be supported by the IMF under a financial arrangement. The program under discussion would aim to support a durable post-pandemic recovery, restore fiscal sustainability, strengthen public financial management, and ensure the protection of the most vulnerable. Other key structural reforms to be implemented include strengthening governance and fostering private sector investment to spur inclusive growth and employment over the medium term.
At the end of the visit, Mr. Aslam issued the following statement:
“Lesotho has been experiencing twin economic shocks resulting from the pandemic and a decline in revenues from the Southern African Customs Union (SACU) that have proved to be highly volatile. Public expenditures have been increasing while SACU revenues were buoyant but have not adapted to their decline and the limited growth in other revenue sources. At the same time, the economy has been in recession since 2017. The resulting fiscal and external imbalances, if left unaddressed, would continue to put pressure on international reserves and lead to government payment arrears.
“Discussions emphasized the need to support a robust and inclusive post-pandemic recovery. To this end, the mission discussed with the authorities a number of options for containing the fiscal deficit to a level that is sustainable and can be fully financed. The team noted that the adjustment should be focused on expenditure measures while boosting poverty-reducing social spending to protect the most vulnerable. Complementary actions include efforts to broaden financial access and inclusion; strengthen financial supervision; modernize the legal frameworks for bank lending, business rescue, and restructuring, and digitalize payment systems.
“On the fiscal front, efforts should focus on addressing the public sector wage bill, which is one of the largest in the world compared to the size of the economy; saving on public sector and official allowances; better targeting education loans; streamlining the capital budget and initiating gender-responsive budgeting. Discussions also considered measures to modernize tax policy and improve domestic revenue mobilization. The mission noted the need to address long-standing PFM issues to ensure the provision of reliable fiscal data, the integrity of government systems, and the sound use of public resources.
“Significant progress was made during the visit, and discussions will continue in the coming weeks. If agreement is reached on policy measures in support of the reform program, an arrangement to support Lesotho’s economic program would be proposed for the IMF Executive Board’s consideration.
“The IMF team thanks the authorities for their hospitality and constructive discussions.”
The IMF mission met with Prime Minister Majoro, Minister of Finance Sophonea, Central Bank Governor Matlanyane, and other senior government officials. The team also met with representatives of the diplomatic community, private sector, civil society, and multilateral development partners.
Nigeria’s Inflation: Prices Increase at Slower Pace in September 2021
Prices of goods and services moderated further in Africa’s largest economy, Nigeria in the month of September 2021, the latest report from the National Bureau of Statistics (NBS) has revealed.
Consumer Price Index (CPI), which measures the inflation rate, grew at 16.63 percent year-on-year in September, slower than the 17.01 percent rate achieved in the month of August.
On a monthly basis, inflation rose by 1.15 percent in September 2021, representing an increase of 0.13 percent from 1.02 percent filed in August 2021.
Food Index that gauges price of food items grew at 19.57 percent rate in the month, below the 20.30 percent rate recorded in August 2021.
The increase in the food index was caused by increases in prices of oils and fats, bread and cereals, food product N.E.C., fish, coffee, tea and cocoa, potatoes, yam and other tuber and milk, cheese and egg.
However, on a monthly basis, the price of food index rose by 0.20 percent from 1.06 percent filed in August 2021 to 1.26 percent in September 2021.
The more stable twelve months average ending in September 2021 revealed that prices of food items grew by 0.21 percent from 20.50 percent in August to 20.71 percent in September.
Prices of goods and services have been on the decline in Nigeria in recent months, according to the NBS. However. on masses are complaining of the persistent rise in prices of goods and services across the nation.
Some experts attributed the increase to Nigeria’s weak foreign exchange rate given it is largely an import-dependent economy.
Global Debt Rises by $27 Trillion to $226 Trillion in 2020 – IMF
The pandemic has led to an unprecedented increase in debt—issued by governments, nonfinancial corporations, and households the IMF estimated in the latest Fiscal Monitor report. In 2020 global debt reached $226 trillion and increased by $27 trillion, the IMF estimated Wednesday (October 13) in Washington, DC.
High and growing levels of public and private debt are associated with risks to financial stability and public finances, said Vitor Gaspar, Director of the IMF’s Fiscal Affairs Department.
“According to preliminary estimates from the Global Debt Database, global debt by governments, households, and non-financial corporations reached $226 trillion. That represents an increase of $27 trillion relative to 2019. Both the level and the pace of increase are record highs. We know that high and rising debts increase risks to financial stability and public finances,” Gaspar said ahead of the Fiscal Monitor release.
Gaspar emphasized that countries with a high credibility fiscal framework benefit from better bond market access. They also experience lower interest rates on sovereign bonds.
“A strong message from the fiscal monitor is that fiscal credibility pays off. Countries that have credible fiscal frameworks benefit from better and cheaper access to bond markets. That’s a precious asset to have in an uncertain and difficult times like COVID 19. Fiscal credibility pays off!,” added Gaspar.
He also recognized that while the international community has provided critical support to alleviate fiscal vulnerabilities in low-income countries, still more is needed.
“In 2020, the IMF’s rapid financing and the G20 Debt Service Suspension Initiative contribute to make resources available to the countries that need it the most. But more is needed. With a general allocation of SDRs of $650 billion, liquidity has been provided, but much more could be achieved if rich countries would make part of their resources available to the developing world. By doing so, donors would be contributing to fighting the pandemic and to the achievement of sustainable and inclusive growth,” said Gaspar
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