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Naira’s Decline Sparks Concerns of Impending Petrol Price Surge

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Oil marketers have raised concerns over a possible increase in the pump price of Premium Motor Spirit (PMS), commonly known as petrol, as the value of the Nigerian naira continues to decline against the United States dollar.

The naira’s exchange rate on the black market fell from N900/dollar on Wednesday to N920/dollar on Thursday, sparking worries about the sustainability of the current petrol price.

A few weeks ago, the naira reached N945/dollar on the parallel market but subsequently recovered.

However, it has once again started depreciating this week, causing unease among economic stakeholders and those in the oil and gas sector.

Oil dealers and marketers argue that with the exchange rate of N920/$, the current petrol price of N617/litre cannot be maintained.

They project a cost of between N680/litre to N700/litre for PMS, considering the N920/$ exchange rate. They explained that when petrol prices were set at N590/litre to N617/litre, the forex rate was around N750/$ to N800/$.

While the Federal Government has insisted on not increasing petrol prices, the oil marketers believe that the government may be secretly subsidizing the commodity based on the current exchange rate reality.

This implies that the government might be spending approximately N90 as subsidy on petrol due to the naira’s depreciation against the dollar.

The ex-depot price of petrol was reported to be around N585/litre on Thursday. With the projected cost of N680/litre, it suggests that the government might need to spend about N95/litre as subsidy.

Given that petrol consumption in Nigeria is approximately 52 million litres daily, this could lead to a monthly expenditure of about N153 billion on fuel subsidy.

Despite assurances from the President and the Nigerian National Petroleum Corporation Limited (NNPCL) that there would be no increase in the pump price of PMS, oil marketers insist that rising exchange rates could drive up petrol prices.

They argue that the only way to maintain the current prices is if the government is quietly subsidizing fuel.

The Nigeria Labour Congress (NLC) has also warned that it will revert to the status quo should there be any further petrol price hike.

The Trade Union Congress (TUC) has called for a thorough investigation of the Nigerian National Petroleum Company Limited (NNPC) in response to the ongoing concerns.

The naira’s continued weakness in the parallel market has exacerbated the situation, despite efforts by the Central Bank of Nigeria to stabilize it.

Bureau De Change operators reported selling rates between 916/dollar and 920/dollar, further highlighting the currency’s vulnerability.

Oil marketers have called on the President to personally inspect Nigeria’s refineries and ensure their revitalization.

They believe that with the refineries in operation, the country can reduce its dependence on imported petroleum products, ultimately stabilizing fuel prices and the exchange rate.

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Economy

Nigeria, China Collaborate to Bridge $18 Billion Trade Gap Through Agricultural Exports

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In a concerted effort to address the $18 billion trade deficit between Nigeria and China, both nations have embarked on a collaborative endeavor aimed at bolstering agricultural exports from Nigeria to China.

This strategic partnership, heralded as a landmark initiative in bilateral trade relations, seeks to narrow the trade gap and foster more balanced economic exchanges between the two countries.

The Executive Director of the Nigerian Export Promotion Council (NEPC), Nonye Ayeni, revealed this collaboration during a joint meeting between the Council and the Department of Commerce of Hunan province, China, held in Abuja on Monday.

Addressing the trade imbalance, Ayeni said collaborative efforts will help close the gap and stimulate more equitable trade relations between the two nations.

With Nigeria importing approximately $20.4 billion worth of goods from China, while its exports to China stood at around $2 billion, representing a $18 billion in trade deficit.

This significant imbalance has prompted officials from both countries to strategize on how to rebalance trade dynamics and promote mutually beneficial economic exchanges.

The collaborative effort between Nigeria and China focuses on leveraging the vast potential of Nigeria’s agricultural sector to expand export opportunities to the Chinese market.

Ayeni highlighted Nigeria’s abundant supply of over 1,000 exportable products, emphasizing the need to identify and promote the top 20 products with high demand in global markets, particularly in China.

“We have over 1,000 products in large quantities, and we expect that the collaboration will help us improve. The NEPC is focused on a 12-18 month target, focusing on the top 20 products based on global demand in the markets in which China is a top destination,” Ayeni explained, outlining the strategic objectives of the collaboration.

The initiative not only aims to reduce the trade deficit but also seeks to capitalize on China’s growing appetite for agricultural products. Nigeria, with its diverse agricultural landscape, sees an opportunity to expand its export market and capitalize on China’s increasing demand for agricultural imports.

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IMF Urges Nigeria to End Fuel and Electricity Subsidies

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In a recent report titled “Nigeria: 2024 Article IV Consultation,” the International Monetary Fund (IMF) has advised the Nigerian government to terminate all forms of fuel and electricity subsidies, arguing that they predominantly benefit the wealthy rather than the intended vulnerable population.

The IMF’s recommendation comes amidst Nigeria’s struggle with record-high inflation and economic challenges exacerbated by the COVID-19 pandemic.

The report highlights the inefficiency and ineffectiveness of subsidies, noting that they are costly and poorly targeted.

According to the IMF, higher-income groups tend to benefit more from these subsidies, resulting in a misallocation of resources. With pump prices and electricity tariffs currently below cost-recovery levels, subsidy costs are projected to increase significantly, reaching up to three percent of the gross domestic product (GDP) in 2024.

The IMF suggests that once Nigeria’s social protection schemes are enhanced and inflation is brought under control, subsidies should be phased out.

The government’s social intervention scheme, developed with support from the World Bank, aims to provide targeted support to vulnerable households, potentially benefiting around 15 million households or 60 million Nigerians.

However, concerns persist regarding the removal of subsidies, particularly in light of the recent announcement of an increase in electricity tariffs by the Nigerian Electricity Regulatory Commission (NERC).

While the government has taken steps to reduce subsidies, including the removal of the costly petrol subsidy, there are lingering challenges in fully implementing these reforms.

Nigeria’s fiscal deficit is projected to be higher than anticipated, according to the IMF staff’s analysis.

The persistence of fuel and electricity subsidies is expected to contribute to this fiscal imbalance, along with lower oil and gas revenue projections and higher interest costs.

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IMF Warns of Challenges as Nigeria’s Economic Growth Barely Matches Population Expansion

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The International Monetary Fund (IMF) has said Nigeria’s growth prospects will barely exceed its population expansion despite recent economic reforms.

Axel Schimmelpfennig, the IMF’s mission chief to Nigeria, who explained the risks to the nation’s economic outlook during a virtual briefing, acknowledged the strides made in implementing tough economic reforms but stressed that significant challenges persist.

The IMF reaffirmed its forecast of 3.3% economic growth for Nigeria in the current year, slightly up from 2.9% in 2023.

However, Schimmelpfennig revealed that this growth rate merely surpasses population dynamics and signaled a need for accelerated progress to enhance living standards significantly.

While Nigeria has received commendation for measures such as abolishing fuel subsidies and reforming the foreign-exchange regime under President Bola Tinubu’s administration, these reforms have not come without costs.

The drastic depreciation of the naira by 65% has fueled inflation to its highest level in nearly three decades, exacerbating the cost of living for many Nigerians.

The IMF anticipates a moderation of Nigeria’s annual inflation rate to 24% by the year’s end, down from the current 33.2% recorded in March.

However, the organization cautioned that substantial challenges persist, particularly in addressing acute food insecurity affecting millions of Nigerians with up to 19 million categorized as food insecure and a poverty rate of 46% in 2023.

Moreover, the IMF emphasized the importance of maintaining a tight monetary policy stance to curb inflation, preserve exchange rate flexibility, and bolster reserves.

It raised concerns about proposed amendments to the law governing the central bank, fearing that such changes could undermine its autonomy and weaken the institutional framework.

Looking ahead, Nigeria faces several risks, including potential shocks to agriculture and global food prices, which could exacerbate food insecurity.

Also, any decline in oil production would not only impact economic growth but also strain government finances, trade, and inflationary pressures.

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