- Oil Prices Rise, Interbank Rate Jumps
Oil futures climbed on Friday as signs of the market tightening after major oil producers agreed to cut output helped set prices up for a modest gain on the week.
The nation’s interbank lending rate also rose to close at 11.5 per cent on Friday, up from seven per cent the previous week as payments for bond and treasury bills purchases drained liquidity from the money market.
On the New York Mercantile Exchange, February West Texas Intermediate crude CLG7, +1.99 per cent jumped $1.47, or 2.9 per cent, to $52.84 a barrel. The contract, which expires at the day’s settlement, finished last Friday at $52.37; so it was trading around 0.9 per cent higher for the week, according to FactSet data.
The report said March Brent crude LCOH7, +2.42% on London’s ICE Futures exchange advanced by $1.54, or 2.8 per cent, to $55.7- a barrel—up around 0.5 per cent for the week.
Saudi Arabia’s Energy Minister Khalid al-Falih, speaking at the World Economic Forum in Davos last week, reportedly said that there had been strong compliance among members and non-members of the Organisation of the Petroleum Exporting Countries to the production cut agreement that kicked in at the start of the year.
News reports also quoted him as saying on Friday that 1.5 million barrels a day of the roughly 1.8 million in cuts pledged by OPEC and non-OPEC countries had already been taken out of the market.
Al-Falih also warned that there could be a shortage of oil supply by 2020 if investment flows continued at their current rate, according to the CNBC.
Comments from Saudi Arabia regarding progress on the output cuts “is giving the market some increased confidence that cheating will be limited and markets will continue to rebalance,” a senior energy analyst at Edward Jones, Brian Youngberg, told MarketWatch.
A committee created to monitor oil-producer compliance with the promised cuts was scheduled to meet at the weekend, the report added
“Since there are mixed expectations on how much of the cuts will come to fruition, any comments one way or the other will sway markets any particular day,” said Youngberg.
In a monthly report issued last week, the International Energy Agency said OPEC production had slowed, declining by 320,000 barrels a day to 33.09 million barrels in December.
“Early indications suggest a deeper OPEC reduction may be under way for January, as Saudi Arabia and its neighbors enforce supply cuts,” the IEA said.
Meanwhile, traders said the lending rate jumped on Friday as some banks scrambled for cash to pay for bonds and treasury bills, Reuters reported.
The Federal Government had on Wednesday raised N214.95bn ($704m) from local currency bonds at its first auction this year, with payment for the bonds due on Friday.
The naira weakened slightly at the open or unofficial market to 498 to the dollar against 497 previously as inadequate greenback supply pressured the local currency.
The local currency, however closed flat at the official interbank window at 305.50 to the dollar, the level it has traded at since August last year.
Travelex, an international money transfer firm, sold around $20m to 2,500 Bureaux de Change operators on Thursday at $8,000 each, but the supply was not enough to calm the market, traders said.
The BDCs quoted their official selling rate at 399 to the dollar on Friday.
The government has been pressing retail operators to narrow what it says is a damaging gulf between the naira’s official rate and the unapproved open retail market.
“We see the interbank rate drop below the double-digit next week on anticipation of budgetary disbursal to government agencies,” one trader said.
Traders said the local currency might firm a bit as international money transfer agents planned to sell another round of dollars to the bureau de change operators next Thursday.
Ogun Records N13.3B Internally Generated Revenue Monthly in Q1 of 2021
Ogun State Government has recorded an average of N13.3billion monthly as Internally Generated Revenue (IGR) in the first quarter of 2021.
The government said it is also planning to raise its yearly Gross Domestic Product (GDP) rate from the current single digit by 25 percent.
The Commissioner for Finance, Dapo Okubadejo disclosed this to newsmen in Abeokuta ahead of the state’s investment summit tagged: ‘OgunIseya21: Becoming Africa’s Model Industrial and Logistics Hub’, slated for July 13th-14th, 2021.
Okubadejo who doubles as the State’s Chief Economic Adviser noted that the state’s IGR had experienced an upward movement after last year’s shortfall due to the Covid-19 pandemic and the attendant lockdown.
“We had a significant turnaround in the first quarter of this year. In fact, as of April, we have done almost N40bn in the Internally Generated Revenue. Our target this year is to exceed all the previous records we have set in IGR. That’s why we have put in place, all these transformation initiatives, friendly policies and also facilitate this investment summit to further showcase Ogun State as the preferred industrial destination,” he said.
The Finance Commissioner was supported in highlighting the investment potentials of the summit by his counterparts from the Ministries of Industry, Trade and Investment, Mrs. Kikelomo Longe; Works and Infrastructure, Ade Adesanya; Culture and Tourism, Toyin Taiwo; Budget and Planning, Olaolu Olabimtan and the Director-General, Public-Private Partnership, Dapo Oduwole.
Unemployment To Push More Nigerians Into Poverty – NESG
On Friday, The Nigerian Economic Summit Group said that many more Nigerians are expected to fall into the poverty trap amid rising unemployment in the country.
The NESG, a private sector-led think-tank, noted in its economic report for the first quarter of 2021 that the country’s economic growth in the period under review was relatively weak.
It said, “Nigeria’s economic growth trajectory is better described as jobless and less inclusive even in the heydays of high growth regime in the 2000s.
“While the Nigerian economy recovered from the recession in Q4 of 2020, the unemployment rate spiked to its highest level ever at 33.3 percent in the same quarter.
“With the COVID-19 crisis heightening the rate of joblessness, many Nigerians are expected to fall into the poverty trap, going forward.”
The group noted that the World Bank estimated an increase in the number of poor Nigerians to 90 million in 2020 from 83 million in 2019.
“This corresponds to a rise in headcount poverty ratio to 44.1 percent in 2020 from 40.1 percent in 2019. The rising levels of unemployment and poverty are reflected in the persistent insecurity and social vices, with attendant huge economic costs,” it said.
According to the report, huge dependence on proceeds from crude oil, leaving other revenue sources unexplored, indicates that Nigeria is not set to rein in debt accumulation in the short to medium term.
The NESG noted that public debt stock continued to trend upwards, with a jump from N7.6tn ($48.7bn) in 2012 to N32.9tn ($86.8bn) in 2020.
It said public debts grew by 20 percent between 2019 and 2020, adding, “This is partly due to the need for emergency funds to combat the global pandemic and alleviate its adverse economic impacts on households and businesses.”
According to the group, Nigeria needs more than an economic rebound, and there is a need to improve growth inclusiveness.
It said, “Nigeria has struggled to achieve inclusive growth for many decades. Since recovery from the 2016 recession, the economy has been on a fragile growth path until it slipped into another recession in 2020 due to the COVID-19 pandemic.
“This suggests that the country needs to attain high and sustainable economic growth to become strong and resilient.
“The relationship between economic growth and unemployment rate in Nigeria suggests that economic growth has not led to a reduction in the unemployment rate – jobless growth.”
The NESG said to reverse this recurring trend, there was an urgent need for collaborative efforts between the government and relevant stakeholders towards addressing the constraints to value chain development in high-growth and employment-elastic sectors, including manufacturing, construction, trade, education, health and professional services, with ICT and renewable energy sectors as growth enablers.
It noted that despite the re-opening of the land borders that the Nigerian government shut since October 2019, inflation reached a four-year high of 18.1 percent in April 2021.
“While we expect improved agricultural production in coming months to partially ease inflationary pressures, this positive impact could be suppressed by recurring key structural bottlenecks including insecurity in the food-producing regions, electricity tariff hike, fuel price increase and hike in transport and logistic costs,” it added.
IMF Queries FG Strategies On Fuel Subsidy, Unemployment, Inflation
The International Monetary Fund has raised the red flag over Nigeria’s resumption of petrol subsidy payments, describing it as injurious to the economy.
It also reiterated the importance of introducing a market-based fuel pricing mechanism and deployment of well-targeted social safety nets to cushion any adverse impact on the poor.
In a report produced after a virtual meeting with Nigerian authorities from June 1 to 8, the IMF also expressed concerns over the rising unemployment and inflation rates, even as it admitted that real Gross Domestic Product was recovering.
The IMF team, led by Jesmin Rahman, further hailed the Central Bank of Nigeria for its efforts at unifying the exchange rate by embracing needed reforms.
The Fund said: “Recent exchange rate measures are encouraging, and further reforms are needed to achieve a fully unified and market-clearing exchange rate.
“The resurfacing of fuel subsidies is concerning, particularly in the context of low revenue mobilisation.
“The Nigerian economy has started to gradually recover from the negative effects of the COVID-19 global pandemic. Following sharp output contractions in the second and third quarters, GDP growth turned positive in Q4 2020 and growth reached 0.5 percent (y/y) in Q1 2021, supported by agriculture and services sectors.
“Nevertheless, the employment level continues to fall dramatically and, together with other socio-economic indicators, is far below pre-pandemic levels. Inflation slightly decelerated in May but remained elevated at 17.9 percent, owing to high food price inflation. With the recovery in oil prices and remittance flows, the strong pressures on the balance of payments have somewhat abated, although imports are rebounding faster than exports and foreign investor appetite remains subdued resulting in continued FX shortage.
“The incipient recovery in economic activity is projected to take root and broaden among sectors, with GDP growth expected to reach 2.5 percent in 2021. Inflation is expected to remain elevated in 2021, but likely to decelerate in the second half of the year to reach about 15.5 percent, following the removal of border controls and the elimination of base effects from elevated food price levels.”
The IMF also recognised that tax revenue collections were gradually recovering but noted that with fuel subsidies resurfacing, additional spending for COVID-19 vaccines and to address security challenges, the fiscal deficit of the Consolidated Government is expected to remain elevated at 5.5 percent of GDP.
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