- Low Oil Prices to Pressure Naira – Report
The weak oil prices and rising economic uncertainty will pressure the Nigerian Naira as Africa’s largest economy struggles with coronavirus pandemic, according to a recent report by Agusto&Co.
In the April 2020 edition report titled ‘COVID-19 in Nigeria: Economic perspectives and mitigating the risks,’ Augusto&Co explained that the coronavirus pandemic has led to a weak global demand for crude oil and forced top producers to offer discounts in order to sell to an already saturated global market.
This, it said, “We believe the naira will come under enormous pressure owing to the slump in crude oil prices from the soft commodity market due to the slowdown in global demand for crude.”
It highlighted the disagreement between Saudi Arabia and Russia to further disrupt the global oil market, the nation’s main source of foreign revenues.
It explained, “Furthermore, ego battles between Saudi Arabia and the Russians have led to the deterioration of the oil market, making a bad situation even worse.
“Crude oil represents about 95 per cent of Nigeria’s export revenues and a downturn in the market for the commodity always has a ripple effect on the economy.”
The Central Bank of Nigeria adjusted the foreign exchange of the Nigerian Naira to reflect the change in the nation’s economic fundamentals following the global pandemic that eroded the nation’s foreign reserves.
This was after the apex bank had said the fundamentals did not dictate devaluation, however, the surge in capital flights among foreign investors forced the central bank to technically devalue the Naira from N360 per US dollar to N360/$.
The report said, ‘The Federal Government of Nigeria has a benchmark crude price of $57 per barrel for the 2020 Fiscal Budget.
“Our preliminary forecasts have been built around an average price of $35 per barrel for the rest of 2020. Under this scenario, Nigeria’s oil & gas export proceeds may fall by half in 2020 to $25bn on year-on-year basis ($50bn;2019).
“This has led to genuine concerns not only for the naira but also the fiscal position of the Federal Government.”