Tensions mount over oil price, negative rating

A RENEWED tension may have begun over assessed macroeconomic challenges, which expectedly would be aggravated with the downgrading of the sovereign rating and sharp fall in the price of crude oil.

Besides, the international rating agency- Standard & Poor’s (S&P), had last week, warned that Nigeria’s economy is in a “clear and present danger,” and immeditely placing it on BB- rating.

According to the rating agency, the country is suffering from the trio of institutional and governance effectiveness; economic structure and growth; and fiscal flexibility and performance, out of its six main classifications.

S&P pointed out that the country’s only strength is in terms of debt burden, while analysts said the development will end up aggravating the already weakened investor confidence.

However, crude oil prices, particularly the Brent crude, eased by seven per cent at the close of trading on Friday at $55.5 per barrel, against $59.7 in the previous week.

The falling oil prices were again blamed on over-supply, which persisted in the global market.

Interestingly, the National Bureau of Statistics’ report indicated that the country earned N12.8 trillion from crude oil export in 2014, representing a 74.4 per cent of total export, which is worth N17.2 trillion.

The report also showed that mineral products accounted for 91.4 per cent of total export, a development re-echoed the calls for the country to diversify its export base given these opportunities.

However, the volatility in the local currency, last week, remained relatively stable at the Interbank Foreign Exchange Market, as it traded within the range of N199.10/$ and N199.15/$, while CBN sold its intervention at N197/$.

Specifically, the naira closed at N199.10/$ on Wednesday, due to autonomous dollar sales by the Nigerian National Petroleum Corporation, causing a three kobo appreciation for the local unit, compared to Tuesday’s N199.13/$.

At the close of the week’s transactions, the naira settled at N199.10/$1 (interbank), the same price with the previous week’s close, although the autonomous intervention and that of CBN failed to meet customers’ demand.

Meanwhile, the nation’s external reserves plummeted further, closing at $30.5 billion compared to $30.8 at the end of the previous week, even as speculations are rife that some level of volatility against the naira would be unfolding in coming weeks as the general elections approach.