Declining oil prices pose risks to 2019 fiscal year projections’

Operators in the organised Private Sector (OPS) have raised concerns about the declining oil prices and risk to government’s economic projections for 2019 fiscal year as well as adverse impact on the 2019-2021 Medium-Term Expenditure Framework (MTEF) if the trend continues.

The Federal Government had projected a production capacity of 2.3 mbpd at a benchmark price of $60 per barrel for the 2019 fiscal year.

At $51.55 per barrel, the brent crude closed lower yesterday, as operators noted that the improvement in liquidity and relative stability in forex market witnessed by businesses in 2018 will likely come under threats due to declining receipts from oil.

The Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf noted that the fiscal operations of government would be adversely affected and this may further threaten the ongoing discussion around new minimum wage.

“As capital flow reversals intensify, as oil price weakens, and as foreign reserves come under pressure, there are worries that the capacity of the Central Bank of Nigeria [CBN] to sustain the current levels of intervention in the foreign exchange market will be tested. Reserves currently stand at $42 billion, down from $48 billion five months ago”, he added.

Besides, the President of the Nigerian Employers’ Consultative Association (NECA), Dr. Mohammed Yinusa, stated that the implementation of Nigeria’s 2018 budget, benchmarked at $61 per barrel could also suffer should the slump persist.

Moreover, Nigeria’s economy, he said, which is currently stabilising on boost in crude oil price, could be adversely affected as crisis in foreign exchange, primarily sourced from the oil sector was projected to worsen.

He lamented the instances where the International Monetary Fund (IMF), cut the growth projections made for Nigeria to 1.9 per cent from 2.1 per cent, stating that the country’s economy is doing poorly, and that of the World Bank, cut its growth projections for Nigeria by 0.2%, from 2.1 per cent to 1.9 per cent, citing reduction in crude oil production levels, and contraction in the agricultural sector, following the herdsmen-farmers crisis which have greatly affected economic recovery.

Yinusa, said the projections of the IMF and World Bank, are very worrisome and unfortunately gives a true reflection of the economic reality on ground.

He noted that Nigeria could face challenges in the areas of deficit financing, cash call payment, microeconomics performance, project financing and political uncertainties.

As members of the organised private sector, he expressed worries about the consequent looming foreign exchange shortfall to support economic activities, especially as it affects importation of required raw materials for the sustenance of production in the real sector of the economy.

He urged Government to intensify the thrust to diversify the economy from crude oil, especially as other emerging countries are becoming a better destination for foreign direct investment (FDIs).

Given the challenging economic conditions, Yusuf noted that key policy reforms would be imperative to support and sustain the stability of the macroeconomic environment.

“These include, among others, a foreign exchange management framework that reflects the market fundamentals, the acceleration of the economic diversification agenda, normalization of Lagos ports environment, the oil and gas sector reform, especially the petroleum industry bill; better debt management strategy to ease the burden of debt service, reduction in the cost of governance at all levels; improvements in the domestic revenue (particularly independent revenue) to reduce volatilities in government revenues”, Yusuf added.

While commending government’s avowed commitment to infrastructural renewal as reflected in the various activities across the nation targeted at infrastructural renewals, Yinusa said the dearth of good infrastructures especially electricity supply, comatose railway system and poor road network turned death traps are reasons for the mass of unproductive youths in the country.

He recommended that government should see to a logical conclusion its power sector reforms to deliver stable power supply to the populace, while priority should be given to the rehabilitation of deplorable road networks while constructing additional ones across the nation.

He said: “There is the need for close monitoring and regulation of the activities of road concessionaires to ensure optimum benefits from such concessions. The transportation and haulage system is virtually road dependent. This is not good for the economy.

“Development of alternative transport system, particularly the water transport, railway, both intra and interstate, should be accorded high priority.

“We recognise the efforts of government in respect of its rail modernisation programme and recommend that the programme should be accelerated in view of its centrality to the growth of internal trade and industrial competitiveness.”

With the upcoming general elections, he advised Government not to focus solely on politics at the expense of the economy and good governance, but continue to work assiduously to sustain the steady stabilisation of our economy through informed policies to position it for continued growth.