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Nigeria’s oil revenue drops to $32.3b, says IMF

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crude-oil-price-jan-5Revenue received by the federation from crude oil sales, Petroleum Products Taxes (PPT), and royalties (after subsidies provided by Nigerian National Petroleum Corporation (NNPC) and cash calls) has decreased from $45 billion in 2011 to $32.3 billion in 2014, according to International Monetary Fund (IMF) Country Report on Nigeria.

Besides, between 2011 and 2014, oil lifting fell from 2.38 to 2.19 mbpd (71⁄2 per cent decline), largely due to stoppages associated with pipeline vandalism. The report, which was released on Monday, stated that the drop in oil revenue over 2011 to 2014, was larger than expected from the evolution of oil prices and production.

The IMF said that in 2015, oil exports are projected to decline by six percentage points (ppts) of Gross Domestic Product and oil revenue by 2.4 ppts of GDP from 2014 levels, with a reduction in the current account balance and loss in international reserves.

IMF noted that a sharp contraction in public investment and domestic demand is projected to reduce growth to 4¾ percent, with inflation increasing to 11½ percent from the effects of exchange rate depreciation.

It stated that these developments also increase risks to the banking sector, given its significant exposure to the oil industry and the potential for capital outflows. “The outlook is subject to significant risks, both external (changes in oil market developments and investor sentiment) and domestic (uncertainty from the election outcome and security situation). Managing adjustment.

“The authorities adopted bold policy actions in November 2014— an adjustment in the official foreign exchange rate and band, tightening of monetary policy rates, and spending cuts totaling 1.7 ppts of GDP in the proposed 2015 budget”, it added.

The IMF said that as the oil price fall appears more permanent than temporary, additional policies will be needed, including greater flexibility in the exchange rate and further fiscal adjustment, particularly in state and local governments.

It noted that it will be essential to ensure that fiscal adjustment is achieved without endangering the delivery of critical public services. Boosting inclusive growth. “The authorities have a comprehensive economic transformation agenda, designed to boost growth, create new job opportunities, and reduce poverty.

With recent oil market developments, however, non-oil revenue mobilization (including an increase in VAT rate) is more urgent than ever and is critical for creating the fiscal space necessary to implement the transformation agenda. Further, the national infrastructure investment plan needs careful prioritization, as financing the entire plan would be a challenge, even with more supportive financial conditions and good progress in financial inclusion”.

IMF stated that a share of the market value of lifting, revenue from PPT and royalties—related to oil lifting other than the NNPC JV allocation declined from about 42 percent in 2011 to 36.9 percent in 2014. This decline, it noted, reflects higher capital and operational costs, part of which can be attributed to vandalism and production disruptions. “These factors reduced the oil revenue yield by 3.6 percentage points (estimated as a residual), equivalent to a loss of about 0.5 percent of GDP in oil revenue in 2014”.

It said that over this period, oil prices also declined by 61⁄2 per cent (from $109 to $102 per barrel). “The direct impact of these two factors reduced revenue by about $5.5 billion in 2014 relative to 2011. The observed drop in revenue was much larger (about $12.5 billion), implying a fiscal yield (relative to the market price)—the ratio of oil revenue to the market value of oil lifting—that declined from 47.2 percent to 39.5 percent over 2011 to 2014”. It disclosed that the recent fall in prices has compounded a secular decline in investment and production of oil, and highlighted the vulnerability of fiscal revenue and foreign exchange to high oil-dependency.


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