Ayodele Aminu
8 December 2008
Lagos — The depreciation of the Nigerian currency, the naira, by N12 against the United States dollar may not to be an entirely bad news for Nigerians after all.
The country stands to earn additional N530.7 billion through the depreciation, THISDAY checks at the Ministry of Finance have revealed.
Over a period of about two weeks, the naira, which had remained stable at the N118: $1 at Central Bank of Nigeria (CBN)-controlled official foreign exchange market Weekly Dutch Auction System (WDAS) since the beginning of the year, has depreciated to N130:$1.
This is also the case in the black market (unofficial market) where the naira has lost N16 against the United States dollar, to trade at N135: $1.
As a result of the volatility in the price of crude oil in the international market, the Federal Government had had to readjust its crude oil price benchmark from the initial $62.50 per barrel proposal to $45.
It also failed to make public the exchange rate it bases its earnings from crude oil on, fuelling speculations that the government might have been in a dilemma.
Currently, Nigeria's average daily crude oil production is 2 million barrels owing to the Niger Delta crises. While the 2008 budget was based on 2.45 million bpd, depicting a shortfall of 450, 000 bpd, the 2009 budget was based on 2.292 million bpd, translating to a shortfall of 292 million bpd - thereby posing serious threat to the budget.
An official in the Ministry of Finance told THISDAY last night that the Federal Government might have decided to base its earnings from oil on the exchange rate of N125: $1.
It had used the exchange rate of N117: $1 for the 2008 budget but the exchange rate remained below N118: $1 since last January.
With the falling price of crude oil in the international market, which had initially reached its peak of $147 per barrel in July, before dropping to $40.81 per barrel, it implies that the Federal Government may have run into troubled waters over financing its N2.87 trillion budget that is laced with a deficit of N1.09 trillion or 3.9 per cent of GDP.
The deficit is to be financed by outstanding signature bonuses, proceeds of ongoing privatisation, the recall of $200 million from the Nigerian Trust Fund of the African Development Bank, any unspent balances from the 2008 Budget, domestic borrowing and a naira-denominated international bond issue of $500 million.
But given the fact the Nigeria's earnings from oil are in dollars, at the 2 million bpd at $45 per barrel and at the exchange rate N125: $1, the N12 depreciation against the US dollar is expected to fetch Nigeria additional N1.45 billion daily - translating into a total of N530.7 billion for 2009.
This is going to boost revenue accruing to the Federation Account and reduce the deficits most likely to be incurred by the three tiers of government.
Experts have said the adjustment of the crude oil price benchmark for the 2009 budget would translate into a cut of more than 30 per cent in budgeted oil revenue. This new benchmark ($45) was 28 per cent below the initially proposed $62.90 and some 24.6 per cent below the $59 benchmark for 2008 budget.
Nigeria had entered 2008 with a very strong position: Current account surplus of $21.2 billion in 2008, external reserves of $63 billion, stable currency and an average growth of 6.2 per cent in five years.
The nation's external reserves are made up of the following components - Excess Crude Proceeds Account ($20.145 billion), Central Bank of Nigeria (CBN) Account ($34.110 billion) and Federal Government Account (N3.417 billion), stood at $57.673 billion end of last November.
The Excess Crude Account, which is a component of the country's foreign reserves, was created by the last administration to save oil windfall - although many politicians have declared the account illegal, demanding that the money should be shared by the three tiers of government.
With the country's monthly import bill averaging about $2 billion (foreign exchange outflow), Nigeria can finance 24 months imports with her $57.673 billion external reserves.
This still puts Nigeria in good stead given the fact that the accepted norm is that a country's external reserves must be able to finance at least six months of her imports.
But the continuous fall in crude oil price at the international markets casts a shadow over the budget for 2009 owing to the country's over-dependence on the oil revenue, which accounts for about 95 per cent of Nigeria's exports revenue.
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why bad news after all