13 June 2012

Nigeria: RenCap Expresses Concern As Oil Price Drops

Renaissance Capital (RenCap) has said the drop in oil price may pose some risk to the Nigerian economy if the trend continues.

In fact, the international financial advisory and investment expressed concern on whether the federal government would be able to meet its oil revenue target.

Vice President, Sub-Saharan Africa Economist, RenCap, Yvonne Mhango, stated this in a report titled: "Nigeria: Lower oil price - The implications in a nutshell," made available to THISDAY Tuesday.

But, THISDAY findings showed that price of oil hovered above $82 a barrel yesterday after touching an eight-month low near $81. This was attributed to the concern over Spain's bank bailout.

Its current position reflected a drop by 35 per cent, compared with its peak value of $127 per barrel in mid-March.

The report explained: "This evidently has implications for Nigeria given that it is an important oil exporter. Our estimates suggest that the risk to Nigeria's economy becomes significant if the average oil price for 2012 drops below $75 per barrel. As we are expecting the oil price to average $110 per barrel in 2012, we think this risk is small."

Rencap also estimated that the 2012 budget of N4.649 trillion (31 per cent of Gross Domestic Product) balances at an oil price of $151 per barrel.

"Given the drop in the oil price to current levels, this may sound alarming. However, this price assumes that the complete budget is financed with oil revenue, which is not the case. Of the total fiscal revenue projection of N3.463 trillion for 2012, the FGN plans to raise 55 per cent from oil revenue and the remainder with non-oil revenue.

"Local and foreign debt (N1.186 trillion) will finance the FGN's projected budget deficit of 2.97 per cent of GDP. The most pertinent concern is whether the FGN will be able to meet its oil revenue target. On our estimates, the FGN would not be able to meet this target if the oil price were to fall below $61 per barrel," the report added.

Meanwhile, the naira fell again against the United States dollar by 73 kobo yesterday as it closed at N163.68 to a dollar, as against the N162.95 to a dollar it closed on Tuesday due to strong demand for the greenback.

The Central Bank of Nigeria (CBN) had offered a total of $300 million at N155.90 to a dollar at its regulated bi-weekly forex market on Monday.

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