Page 4 - AfrOil Week 21 2020

AfrOil COMMENTARY AfrOil
Nigeria’s economy has been under pressure from the pandemic and from low oil prices (Photo: AS)
Good news for Nigeria?
The West African country has released some encouraging economic data from the first quarter, but it should not start celebrating just yet
WHAT:
Higher oil prices and signs of GDP growth are positive developments for Nigeria.
WHY:
The country did make some headway in the first quarter, despite the oil market’s decline.
WHAT NEXT:
Second-quarter data
are likely to be more discouraging, as they will reflect the full extent of the national lockdown and the oil price crash.
LAST year, Nigeria overtook South Africa to become the continent’s largest economy. All too quickly, though, it has had to confront severe economic challenges.
Because of its dependence on oil revenue, it has been vulnerable to the effects of the corona- virus (COVID-19) pandemic, which has shaved off around a quarter of world energy demand. Additionally, it has been hit hard by fluctuations on world oil markets, which began plummeting in early March and then fell further in late April. (Last month, it saw the price of Bonny Light, one of its main export grades, dip to record lows of below $15 per barrel.)
These developments raised questions about Abuja’s ability to meet the spending and reve- nue targets laid out in this year’s budget, which was originally drawn up on the assumption that crude oil prices would average $57 per barrel in 2020.
As such, Nigeria’s government began slashing
budget spending in March and then decided in April to lower the benchmark to $35 per barrel. It also signalled earlier this month that it
was willing to contemplate further changes to its plans. Finance Minister Zainab Ahmed said during an online conference on May 5 that Abuja was drawing up legislation that would bring the benchmark price down to $20 per barrel. She also indicated that budget cuts would continue.
Ahmed’s talk of dropping the budget bench- mark to $20 seems to have been overstated. Later in May, Nigeria’s government approved propos- als for a formal review of the 2020 budget, with a view to bringing the price point down to $25 per barrel.
Obviously, this would represent a less dra- matic change. Even so, the decision to contem- plate another cut was an indication that federal authorities were expecting more bad news about the economy.
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w w w . N E W S B A S E . c o m Week 21 27•May•2020