The execution of Nigeria’s 2019 budget will likely encounter a serious threat as the price of Bonny Light, the nation’s premium oil grade, yesterday, hovered at $52.72 per barrel in the international market.
The price, which had dropped to as low as $48 last week, before hovering at the current level, showed $7.28 below the $60.00 per barrel benchmark price of the budget.
Specifically, while the price of Bonny Light stood at $52.72, others – Brent, West Texas Intermediate, WTI, OPEC Basket, Lousiana Light, Mexican Basket and Urals – stood at $53.21, $45.33, $53.92, $48.98, $45.18 and $49.80 per barrel respectively.
Commenting on the budget, Director-General, Lagos Chamber of Commerce and Industry, LCCI, Mr. Muda Yusuf, disclosed that: “Data from the Organisation of Petroleum Exporting Countries, OPEC, shows that oil prices are trending down at $54 p/bl on December 22, 2018 from its peak of $88p/bl in the month of September and October 2018.
“This is already below 2019-2021 Medium-Term Expenditure Framework, MTEF, and 2019 budget benchmark of $60p/bl. The declining global oil price will likely distort FG’s economic projections for 2019 as well as impact adversely on its MTEF if the trend is not reversed.”
Yusuf stated that the development will impact of the nation’s exchange rate, adding: “Exchange rate was relatively stable in 2018 in different segments of the FX market. At the parallel market, the naira hovered within the band of ₦361/$ – ₦363/$; and at the I&E FX window, the naira traded within the tight band of ₦360.95/$-₦363.32. Higher oil prices and stable local production levels of crude oil are the two key critical factors that restored calm in the forex market.
“Policy rate normalisation in the United States of America, which led to the US FED hike in policy rate triggered capital flow reversals. The contagion effect spread across emerging economies including Nigeria, with foreign investment outflows leading to pressures in the forex market. Consequently, in a bid to support the value of Naira, the CBN sustained its intervention in the forex market.
“There are fears that the sharp fall in oil prices if sustained could lead to new pressures on the naira exchange rate. As capital flow reversals intensify, oil price weakens, and foreign reserves come under pressure, there are worries about the sustainability of current frequency of interventions by the Central Bank of Nigeria, CBN, to stabilise the market.
“Some measure of rate adjustment may become inevitable. The improvement in liquidity and relative stability in forex market witnessed by businesses in 2018 may be threatened if oil price decline continues. This will have profound impact on the prices of imported goods and services leading to arise in the level of inflation. The fiscal operations of government would be adversely affected. This may further escalate the deficit in the budget.
“The Monetary Policy Committee, MPC, of the CBN in its 2018 meetings consistently left the Monetary Policy Rate, MPR, and other parameters unchanged as MPR was left unchanged at 14 per cent; Cash Reserve Ratio, CRR, at 22.5 per cent.
“Liquidity Ratio at 30 percent; and the MPC cited factors such as slow recovery in the economy, rising inflation rate, late implementation of 2018 budget, rising level of non-performing loans in the banking system, weakening demand and consumer spending, and expected minimum wage increase as reasons for retaining a tightening monetary policy stand at this time.”