Nigeria’s external reserves, whose upswing seems to have been subdued by the volatility in crude oil prices, have weakened by $439 million to $48.418 billion as at May 28th.
Data from the Central Bank of Nigeria’s (CBN’s) website showed that the amount represented a decline by 0.9 per cent compared to the $48.857 billion it was at the beginning of the month.
Brent crude oil for July closed at $104.62 per barrel while the United States crude stood at $95.75 per barrel last Tuesday. Global oil prices had declined by six per cent from 107.23 per barrel at the end of the first quarter.
Similarly, Nigeria’s bonny light crude currently stood at $104.5 per barrel on Monday, 9.4 per cent lower than $115.3 per barrel in first quarter of the year. Also Nigeria’s oil output declined to 1.94 million barrels per day in April.
The Financial Derivatives Company Limited (FDC), a Lagos-based research and investment firm, stated in its latest monthly economic report that the domestic oil output had been negatively affected by several disruptions such as pipeline vandalism, bunkering and force majeure.
“Based on our estimate, the country’s oil revenue declined by 6.8 per cent from $1.85 trillion in first quarter 2013,” the FDC report said.
The National Bureau of Statistics’ (NBS’) economic output report for first quarter 2013 had indicated that growth dipped by 0.43 per cent to 6.56 per cent in the first quarter of 2013, from 6.99 per cent the previous quarter.
However, considering the above statistics and the impact of a decline in oil output, FDC warned that “a further decline in global oil prices to $90 per barrel will be devastating for the Nigerian economy, as the reverberations of the shocks will hamper any form of growth across all sectors of the economy.”
It added: “Given that oil prices, notably bonny light crude, decline to $90 per barrel, Nigeria could see a further decline in its growth rate by 1.5 per cent. Also oil revenue would immediately decline by 30 per cent or $2.4 billon per month in nominal terms.
“This will cause a rapid increase in government borrowing, adding to the current total government debt of N8.7 trillion and increase the nation’s fiscal deficit beyond the current target of 2.85 per cent of Gross Domestic Product (GDP).
“As the value of the naira falls towards N165/$ at the parallel market and the likelihood for capital flight increases, external reserves would be depleted by about $10 billion – $15 billion from the current level of $48.5 billion. The resultant $33.5 billion-$38.5 billion will only cover an average of eight months of exports which may lead to increase in the country’s borrowing.”