Bismarck Rewane, Managing Director, Financial Derivatives Company (FDC) Limited, at the weekend, said the economy is inching closely to recession after monthly oil revenues dipped from $1.2 billion per month earlier in the year, to $500 million, a development that could trigger an external and balance of payment crisis.
Rewane explained that a recession occurs after two consecutive quarters of negative growth. Nigeria’s real Gross Domestic Product (GDP) growth rate in first quarter was (-0.36 per cent) while second quarter estimate is (-1.5 per cent), a result that would put the economy in recession.
He disclosed that the last time Nigeria was in recession was in 2004, adding that oil price decline of 56.39 per cent from 2014’s peak; sharp oil production drop of 26.3 per cent; underinvestment over foreign exchange policies and repercussions from Niger Delta Avengers sabotage are largely to be blames for the ongoing economic woes of the country.
The economist also listed budget delays and squabbles; impact of spending now almost late; drying up of new investments; wiping out of trade credit flows, approximately $10 billion and Net Foreign Direct Investment which is down to $1.5 billion (6.25 per cent) as other factors hurting the economy.
Other factors constraining growth are poor power supply from the grid, down to 2,023.3 mega watts from 3593 mega watts, oil production at a low of 1.4mbpd: pipeline vandalism, lingering fuel scarcity that lasted for 12 months, misaligned currency and forex shortages, high interest rate environment and trade and import restrictions.
For him, Nigeria recorded a negative trade balance of N184 billion ($925 million) in the first quarter, from a trade surplus of N364.6 billion ($1.83 billion) in same period of last year; there was sharp decline in exports of 34.6 per cent compared to 7.8 per cent decline in imports, which was the first quarterly trade deficit in at least seven years.
He said the implications remained that average oil price between January to May is now $39.20 per barrel even as oil prices are currently 24 per cent above the budget benchmark of $38 per barrel.
The OPEC says oil production is at 1.64 million barrel per day and is expected to slow further until militants are muted while government revenue expected to remain low pending a recovery in production levels.
Another analyst, Ike Chioke of Afrinvest West Africa Plc, said the weaker external sector performance as indicated in the trade numbers above reflects the sustained pressure in the overall economy worsened by sub-optimal monetary policy responses.
“We maintain that the continued delay by the CBN in fixing the currency market crisis will continue to worsen key macroeconomic indicators notwithstanding the anticipated fiscal impulse. Recent attacks on oil production assets by Niger Delta Avengers suggest a weaker outlook for trade balance so long as export base remained dominated by crude oil. Also, implementation of the 2016 budget which is based on a daily crude production of 2.2mbpd may be threatened even though recent efforts to strengthen independent revenue is commendable,” he said.
Chioke said on the whole, since the metrics for the performance of the 2016 budget on the basis of 80 per cent non-oil revenue appears as a fluke, weaker outlook for domestic oil revenue raises credit risk premium on government’s massive borrowing plan for the fiscal year.
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