Nigeria’s Foreign Reserves to Plunge to $23.3bn in 2020 – Fitch

• Nigeria’s Foreign Reserves to Plunge to $23.3bn in 2020 – Fitch

Fitch Ratings, one of the world’s global rating agencies, on Monday said Nigeria’s foreign reserves will decline from the current level of $35 billion to $23.3 billion this year following an agreement reached by the nation with the Organisation of Petroleum Exporting Countries (OPEC) to cut 417,000 barrels per day.

OPEC and allied nations had agreed to cut a combined 9.7 million barrels per day in June to rebalance the global oil market and artificially boost weak oil prices.

However, while nations like Mexico had refused and eventually compelled the cartel to increase its quota due to several financial obligations, Nigeria agreed without objection despite falling foreign revenues and almost zero fiscal buffer to cushion the effect of COVID-19 pandemic on Africa’s largest economy.

Experts are now saying the decision would further hurt the nation’s economy given lower oil prices.

Fitch said, “We assume that Nigeria will comply fully with the production caps under the OPEC+ agreement, and have reduced our forecast oil output to 1.88 million bpd (including condensates) in 2020 and 1.87 million bpd in 2021, compared with our earlier forecast of 2.1 million bpd for both years.

“We have adjusted our GDP forecasts, and now expect Nigeria’s economy to contract by three per cent in 2020, before a recovery to three per cent growth in 2021.

“Despite the OPEC+ deal, our oil price forecasts remain unchanged at $35/barrel for Brent on average in 2020 and $45/barrel in 2021.”

The global agency said the decline in exports and capital importation means Nigeria’s current account would remain in deficit, desite the drop in imports.

“We project the current account, which had been in surplus for much of the last 20 years, to record a deficit equivalent to 3.8 per cent of GDP in 2020 and 2.5 per cent in 2021,” it said.