- More Forex Crisis as Senate Okays N305 to $1 for Budget
The Senate yesterday retained the foreign exchange rate of N305 to the dollar for the 2017 budget. This was part of the key decisions by the upper legislative chamber while passing the Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP).
Adopting the recommendations of its Joint Committee on Finance, Appropriation and National Planning on the document, the Senate however, raised the proposed oil benchmark of $42.50 in 2017 budget to $44.5 per barrel.
The decision to retain a conservative exchange rate benchmark of N305 per dollar could further mount pressure on the naira, especially as the CBN has failed to meet forex demand in recent times. Industry experts had condemned the wide gap between official exchange rate and that of the parallel market, saying it was the reason for the weak naira.
Presenting the report, the joint committee chairman, John Enoh, stated that “a judicious monetary fiscal policy mix and deliberate government policies to expand the productive base of the economy would be expedient to improve the exchange value of the naira relative to the dollar.”
According to him, “it has become obvious that the fixed exchange rate regime as implemented in Nigeria is no longer useful. The sustained and widening gap between the official exchange rate and the parallel market has created several loopholes in the system. However, the recent transition from fixed exchange rate regime to flexible exchange regime appears commendable.”
He commended the recent migration from fixed exchange rate regime to flexible exchange rate regime but tasked the Central Bank of Nigeria (CBN) to put in place measures meant to close the gap between parallel market and the official exchange rate.
Defending its decision to raise the oil benchmark, the committee said international oil industry watchers had forecast that oil prices were gradually heading towards $60 per barrel.
The Senate also approved the recommendation to retain 2.2 million barrel per day oil production volume, observing that the projection is achievable if the Federal Government makes concerted efforts to stem the tide of militancy in the Niger Delta.
The Senate approved the government’s borrowing plan of N2.321 trillion, made up of N1.253 trillion as domestic borrowing and N1.067 trillion external borrowing. It charged the government to be focused and ensure that the loans are used to finance critical projects capable of increasing productivity which will in turn yield revenue to service the debt.
The lawmakers approved government’s independent revenue projection of N807.57 billion as contained in the revised MTEF and FSP just as it approved the projected N5.122 trillion non-oil revenue in 2017. They tasked the revenue collection agencies to “intensify their collections drive to boost the non-oil components of the revenue.”
But Ben Murray-Bruce (Bayelsa East) faulted the approval of N305 exchange rate. He said: “You have pegged the exchange rate at N305 to the dollar. Nobody in this room today can go to the bank and buy the dollar at N305 and so, we have an exchange rate that is ridiculous. The black market is about N500 and it is only about N200 differential. Between 1960 and 1980, despite the civil war, when (Chief Obafemi Awolowo was federal commissioner for finance), the country was moving on without borrowing a penny.
“In the exchange rate between the official and black markets, there was no differential. In 1980, it was $1: 97cents to the naira and the difference between official and black market was N10 kobo.
“When (Shehu) Shagari was overthrown on December 31st in 1983, the official rate of exchange was N3 to the dollar and the black market was N4 to the dollar. So, it was a N1 differential. Three years ago, it was a N10 to N15 differential between the black market and the official rate.
“Today, it is N200 and so, it is better for businessmen to round trip than to manufacture. The exchange rate we have is encouraging round tripping. When the exchange rate encourages round tripping, we will never close the gap because the richest people in Nigeria today are treasurers of banks. The exchange rate is wrong. N305 is unrealistic.”
The House of Representatives also yesterday adopted $44. 5 per barrel as benchmark price for the 2017 budget.The resolution followed the adoption of the report of Ibrahim Babangida- led joint House committees on Finance, Appropriation, National Planning and Economic Development, Legislative Budget and Research and Aids, Loans and Debt Management on the 2017-2019 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) at the plenary presided over by the Deputy Speaker, Sulaimon Yussuf Lasun.
Also, the Senate yesterday resolved to probe the use of about N130 billion donated by international bodies to non-governmental organisations (NGOs) in Nigeria to fund humanitarian relief activities in the North East.
Adopting a motion by Ali Ndume (APC, Borno South), titled “The state of Humanitarian Relief Effort in the North East amidst high level of funding so far”, the upper legislative chamber mandated its Committee on Special Duties to initiate the process of synergising between United Nations, donor agencies, NGOs, federal, state and local governments to ensure effective coordination of the humanitarian response for the benefit of the displaced persons and victims of the insurgency in the North East, and report back in two weeks.
Ndume noted that the United Nations Office for the Coordination of Humanitarian Affairs (UNOCHA) reported that over $426 million or N130 billion had been received as at December 2016. “Although an estimated N36 billion worth of funding for food security has been reportedly donated towards alleviating the food security problem in the north east, malnutrition has reached extreme levels in parts of Borno, Adamawa, and Yobe states,” Ndume said.
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.
Gold Gained Ahead of Joe Biden Inauguration 2021
Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.
The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.
He said, “The key factor appears to be the (U.S.) currency.”
As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.
Also, the effectiveness of the vaccines can not be ascertained until wider rollout.
Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.
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