There are reasons to be very uncomfortable about the outlook of the economy of Nigeria in 2016. And the worrying signs are everywhere you look, if you are an Economist or someone who have some strong background in Economics. Nigeria is a country whose vast resources come from oil. The federal statistics has it that the percentage of national resources accruing from oil is at about 85% of the federal revenue. This is a very nice thing if and when the oil price is at its boom or is high. When the price is high, a country like Nigeria will earn a lot of money from oil. But that is also a very bad thing if a huge part of our national revenue accrues from a single sector. Now, with the price forecasted to fall drastically to as low as $15to $20 per barrel.The days ahead may just be harder than envisaged as the International Monetary Fund (IMF), Thursday, said crude oil prices may slump to as low as $20 per barrel in 2016.
Following the release of the “IMF Executive Board Concludes 2015 Article IV Consultation with Iran” report, the body highlighted that the price of crude oil could drop between $5 and $15 in 2016. Following the release of the “IMF Executive Board Concludes 2015 Article IV Consultation with Iran” report, the body highlighted that the price of crude oil could drop between $5 and $15 in 2016.
According to IMF, the dwindling oil prices would not have overtly negative effect on Iran, whose gross domestic product (GDP) is expected to rise from 4 to 5.5 percent by 2017.
“Prospects for 2016/17 are brighter, owing to the prospective lifting of economic sanctions. Higher oil production, lower costs for trade and financial transactions, and restored access to foreign assets, are expected to lift real GDP to about 4–5.5 percent next year,” IMF said.
The same cannot be said for Nigeria, whose 2016 budget is benchmarked at an oil price of $38 per barrel for the 2016 fiscal year.
With Nigeria expected to produce 2.2 million barrels of crude oil per day in 2016 and sell at $38 per barrel, the country expects to generate $83.6 million per day in 2016 – $30.514 billion in the year 2016.
Going by IMF’s predictions at $20, Nigeria would generate $44 million per day in 2016, amounting to $16.060 billion in the year.This would mean that Nigeria would get at least 47.4 percent less revenue from oil than what is already projected, consequently adding more pressure to the nation’s need to go borrowing in 2016.
According to President Muhammadu Buhari, oil related revenues are expected to contribute N820 billion to the economy, while the budget deficit which stands at N2.22 trillion would be funded by foreign and domestic loans.
If the N820 billion expected from oil revenues is cut by 47.4 percent – the IMF projected decline in oil prices – the nation’s budgetary deficit would move N388.68 billion to N2.59 trillion.
As at November, Iran, with the world’s fourth largest oil reserves, had 36 million barrels of oil stored in offshore tankers for sale in 2016 – sure to drive oversupply.This is against the Organisation of Petroleum Exporting Countries (OPEC) projections that the global crude oil prices at seven-year low will not continue to fall, as it could swing upwards soon.
The Secretary-General, OPEC, Abdullah al-Badri, made this disclosure at the first OPEC-India Energy dialogue in New Delhi.
It will be recalled that oil prices fell by about two-thirds since mid-2014, with Brent crude on Monday flirting with its lowest level since 2004 at just above $36 a barrel.
According to him, “I’ve been in the oil business all my life. I saw six cycles – I saw very high price, I saw low price, and this is one of them. This will not continue.”
Now, the mammoth question for Nigeria is how could this be managed and still make the economy grow? Though the president Mohammadu Buhari is known for being austere, that alone cannot make the economy grow. Though cutting down on federal government expenses could make money money available for other projects, but would that be enough to cushion the economy? Also cutting on federal government expenses would generate further unemployment in the country. Could austerity allow economic growth? Another aspect of the issue is the fight against corruption. Could the government rescue enough money to make a difference in the economy? There so many questions to be asked , and I hope the government has enough answers for them all.