Nigeria’s oil revenue earn­ings would slip to $52 bil­lion from $88 bil­lion-IMF

NIGERIA’S bid to shore up its oil revenue base may have suffered a setback as the International Monetary Fund (IMF) has predicted that the country’s oil.

The latest oil projection for the country is contained in the Article IV Consul­tation Staff Report of the IMF, released recently. This represents a reduction of six percentage points in the nation’s Gross Domestic Product (GDP), and would reduce its external current account balance as well as international reserves.

The IMF maintained that Nigeria’s outlook for growth is expected to moderate as the economy adjusts to per­manently lower oil prices, adding that fiscal oil reve­nues are projected at 3.4 per cent of GDP, down from 5.8 per cent last year, limiting fiscal spending.

It equally stated that ag­gregate demand shocks could lower growth by about 1.5 percentage point from last year to 4.3 per cent this year, adding that the over­all impact on non-oil sector GDP will come from cuts in public investment and a reduction in real purchasing power of oil receipts.

The global financial body said the depreciation of the local currency will add to inflation, reflecting the pass-through of higher domestic prices for imports, stressing that the effect is likely to be contained, in part, due to lower food prices from in­creased local production of staple food crops.

According to the IMF, the outlook is compromised by low fiscal and external buf­fers, which have reduced the capacity to absorb shocks relative to the experience of the 2008-09 financial crises, even as it admitted that the government has expressed its determination to imple­ment appropriate measures to manage risks.

“They agreed that the oil price shock is significant and, at least in part, per­manent, but saw a smaller effect on economic activ­ity owing to measures tar­geted at sectors critical for growth (agriculture, power, small enterprises) and the impact of remittances. They noted that rising food self-sufficiency would limit the pass-through to inflation and activity in housing con­struction would continue,” it said.

It, however, noted that Nigeria’s exports to Eco­nomic Community of West African States (ECOWAS) countries have been increas­ing from $1 billion in 1990 to about $6 billion in 2013. It pointed out that the grow­ing cross-border activity of Nigerian-based banks has increased the scope for spillovers through financial channels, along with regu­latory and supervisory chal­lenges. It maintained that the implementation in January of the Common External Tariffs (CET) for ECOWAS member countries is expect­ed to reduce incentives for informal trade and simplify Customs procedures, poten­tially increasing recorded trade volumes.

“Moreover, the slowdown in Nigeria will adversely af­fect informal exports to Ni­geria. Anecdotal evidence indicates that goods that are subject to import restrictions in Nigeria have become key export goods for neighbour­ing countries.