Page 15 - AfrOil Annual Review 2021

AfrOil JUNE AfrOil

When oil is more expensive, he explained, Abuja non-performing loans (NPLs) contained. “Nev-
must spend more in order to ensure that fuel ertheless, it remains to be seen what share of
prices do not exceed the target figures. “[For] forborne loans may turn non-performing as the
us as a country, as prices go up, the burden of impact of the pandemic abates,” the fund said in
providing cheap fuel also increases and that’s a its statement.
challenge for us,” he said.
He went on to say, though, that world crude Mixed signals
markets had not yet reached the point of making It is not yet clear how Nigeria intends to proceed
Nigerian fuel subsidies unsustainable. “[On] a with respect to fuel price subsidies.
net basis, you know, the high prices, as long as In March, NNPC spokesman Kennie Obat-
[oil] doesn’t exceed $70 to $80 [per barrel], it’s eru indicated that the state had opted to return
okay for us.” to subsidising petroleum product prices in
order to preserve social stability. He explained
IMF concerns that Abuja was keen “not to jeopardise ongoing
The International Monetary Fund (IMF) engagements with organised labour and other The renewal of
appears to have reached the conclusion, though, stakeholders on an acceptable framework that
that Abuja ought to take action now. will not expose the ordinary Nigerian to any the petroleum
Last week, the organisation voiced concern hardship.” product subsidies
about the renewal of fuel subsidies in Nigeria, By contrast, Godwin Emefiele, the gover-
even though officials in Abuja claimed in March nor of the CBN, said recently that he expected has continued
that they had put an end to them. Following artificially low fuel prices to come to an end.
virtual meetings with Nigerian authorities, the He pointed to expectations of an increase in to be a burden
IMF reported in a statement that its team had domestic petroleum product supplies following
“expressed its concern with the resurgence of the commissioning of the 650,000 barrel per day on Nigeria’s
fuel subsidies.” (bpd) Dangote refinery near Lagos, scheduled economy
The fund asserted that fuel subsidies were for next year.
not the only drag on Nigeria’s economy and Meanwhile, Ian Simm, principal advisor at
urged the government to continue with efforts consultancy IGM Energy, expressed reserva-
to standardise its exchange rates. “The mission tions about leaning so heavily on a single refin-
recommended maintaining the momentum ery project, no matter how large.
toward fully unifying all exchange rate windows “From urea production to feedstock for
and establishing a market-clearing exchange plastics manufacturers and the end of subsi-
rate,” it said. dies, Abuja appears to be putting numerous
The IMF was referring to Nigeria’s decision sizeable eggs in the Dangote basket,” Simm said
to introduce multiple competing naira exchange to AfrOil. “While the refinery is nearing com-
rates five years ago in order to prevent a major pletion, any further delays or disruption could
devaluation of the currency. Since then, the prolong Nigeria’s woes and the government
Central Bank of Nigeria (CBN) has allowed the is well-advised to push forward with its pro-
official value to weaken in an attempt to bring it gramme to rehabilitate existing downstream
into line with the NAFEX rate. infrastructure while encouraging the develop-
Reuters noted last week that the IMF had ment of new facilities.”
made its statement after the World Bank criti- In the meantime, the renewal of the petro-
cised the CBN’s actions. According to the World leum product subsidies has continued to be a
Bank, the news agency said, the CBN’s manage- burden on Nigeria’s economy.
ment of the foreign exchange regime has limited As the Daily Trust newspaper noted last
access to forex, hindering confidence and appe- week, the government spent NGN197.74bn
tite among investors. ($481mn) in the first quarter of this year to
On a more positive note, the IMF has also maintain fuel prices at below-market levels. If
acknowledged that Nigeria’s banking indus- crude prices continue to rise, the bill is sure to
try remains well-capitalised, with the level of go up. ™

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