Nigeria’s election has been won and the president elect is faced with the task of fixing the economy of Africa’s largest economy badly hit by falling oil prices since June last year which accounts for the vast majority of the country’s public revenue.
Nigeria is Africa’s biggest oil producer and its largest economy, but has failed to reap benefit with nearly half of its population living below the poverty line.
As crude prices continue to trend lower, the country’s currency continues to weaken, and investors are losing confidence amid corruption allegations – these problems bode ill for Nigeria’s economic outlook this year.
“The economy remains heavily reliant on the oil sector, which is not likely to change post-election,” said Angus Downie, head of economic research at pan-African banking conglomerate Ecobank in an interview with International business times.
Downie explained that Nigeria needs serious structural reforms to diversify the sources of government revenue. But this won’t come easy.
“There are various obstacles that would likely prevent them from being successfully implemented,” he said, noting that these range from weak economic policies to bottlenecks in infrastructure.
Nigeria’s foreign exchange reserves fell 4.11 percent to $29.79 billion by March 31, from $31.07 billion a month earlier. Data from the CBN also shows an external reserve that was $34.49 billion at the beginning of the year has now dropped by over $4.7 billion year to date.
Analysts say that even the headline reserve figure of below $30 billion is somewhat illusory, given that it includes $2.1bn from Nigeria’s Excess Crude Account and interventions in forward and swaps markets have not been fully accounted for.
Alan Cameron of Exotix, a brokerage, estimates that the true reserve figure is closer to $28.1bn, equal to just over four months’ worth of imports and “fast approaching a critical level”. The naira has stabilised somewhat of late, but only thanks to a 17 separate new measures and policies, he points out, as reported by Financial Times.
The international standard for healthy reserves is six months import cover, which for Nigeria should be about $48 billion. Before the oil price plunge Nigeria external reserve had crossed the $60billion mark, indicating over eight month cover.
According to the latest economic data, the economy has significantly underperformed in the first quarter of 2015.
The International Monetary Fund recently downgraded Nigeria’s economic growth forecast for 2015, predicting its GDP will increase by just 4.8 percent, down from 6.1 percent in 2014.
Available data on the Central bank of Nigeria’s website shows that the federal ran a N100 billion deficit in January.
Oil production figures have also come short of the budget assumptions as the oil sector produce 1.9 million barrels per day in January, compared to 2.3 mbpd assumed in the 2015 budget.
Analyst at FBN capital, say there are serious fiscal implications for the oil production shortfall, given the oil price decline and the naira devaluation.
According to analysts, the impact arising from low global oil prices will remain the main issue for the authorities to tackle.
Nigeria’s inflation rate rose for the third consecutive month to 8.4 per cent in February, from 8.2 per cent the previous month, partly driven by increases in prices of imported food items, National Bureau of Statistics (NBS) states in its report.
JOSEPHINE OKOJIE
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