President Mohammadu Buhari has set up a committee with a mandate to review oil price benchmark amidst widespread Coronavirus (Covd19). The committee chaired by Mrs Zainab Ahmed Minister of Finance, Budget and National Planning has as members Prince Clement Agba Minister of State Budget and National Planning, Mr. Timipre Sylva, Minister of State Petroleum Resources and the Mele Kyari Group Managing Director (GMD) Nigeria National Petroleum Corporation (NNPC).Meanwhile the Lagos Chamber of Commerce and Industry LCCI has said thatthe outbreak of the coronavirus few weeks ago has profound implications for the Nigeria economy.
In a statement signed by the Director General Dr. Muda Yusuf the Chamber said “It, poses a major threat to Nigeria’s macroeconomic fundamentals, the impact of which may be systemic and far reaching. The looming price war contemplation by Saudi Arabia, the largest crude oil exporter, portends even more ominous signs for the Nigerian economy. This is on the back of the collapse of the OPEC – Russia alliance. Saudi Arabia is offering significant discounts to its customers and also increasing output. As at Friday, 6th March 2020, crude oil price has fallen to all time low of $45.27 per barrel, the lowest since 2017. Oil price budget benchmark for 2020 budget was $57 per barrel. This sharp drop in revenue could cause significant dislocations in the 2020 budget and in the economy, especially for a country already grappling with challenges of weak revenue performance and a complete erosion of fiscal buffers. It is instructive that the Finance Minister is contemplating a review of the underlying assumptions of the 2020 budget, and rightly so.
“There is also the revenue effect of the Coronavirus which is related to the drop in oil price. Oil revenue currently accounts for about 50% of government revenue and about 85% of foreign exchange earnings. With the current scenario of tumbling oil price, a drastic reduction in the revenue of government me become inevitable in the near time. This has implications for the level of fiscal deficit in the budget; budget implementation will be constrained; infrastructure financing will be affected; borrowing may increase, and the capacity to fund capital project will be severely constricted. With this scenario, the outlook for oil dependent economies looks rather gloomy. Oil revenue accounts for about 85% of foreign exchange earnings and is the major driver of accretion to the foreign reserves. The slump in oil price and the associated adverse expectations will put fresh pressures on the reserves. Currently, is at all-time low of $36.2 billion as at 3rd March 2020. This outlook has the following implications; weakening of investors’ confidence, generation of speculative pressures on the currency; likely depreciation of the naira exchange rate; heightened inflationary pressures on the back of currency weakening; likely increase production and operating costs for businesses and weakening of purchasing power with adverse implications for the welfare of the citizens.
He further said “the global supply chain has been deeply disrupted as China, which is the second largest economy in the world, is a major supplier of inputs for manufacturing companies around the world, Nigeria inclusive. Many manufacturers and service providers in the country are already experiencing acute shortage of raw materials and intermediate inputs. This has implications for capacity utilization, employment generation [and retention] and adequacy of products’ supply to the domestic market. There is also an implication for inflation. Many events and conferences in Nigeria and around the world have been cancelled as a result of the Coronavirus scare. For most of these events, huge sum of money and resources have been committed to the organisation, planning and logistics. These translate into huge loses to the promoters of these events”.