Fitch Ratings, world’s leading risk analysts, has said that Nigeria’s oil export will record a 50 percent decline by end of this year due to the impact of the Coronavirus (COVID-19) pandemic on the economy.
Mahmoud Harb, Director, Fixed Sovereign Team, Fitch Ratings, stated this in a webinar on Sovereign Risk in Nigeria, saying that Nigeria’s oil revenue will, consequently, fall by the same magnitude at the end of the year. The federal government earned N5.54 trillion from oil export in 2019. According to him, the expected fall in oil export would result in the country’s current account balance remaining in deficit for three consecutive years in 2019 to 2021.
He stated: “The COVID-19 shock has aggravated the on-going pressures on external liquidity in Nigeria. These on-going pressures stem, first, from a shift of the long standing current account in plus to deficit in 2019 and increased reliance on portfolio inflows under the Central Bank of Nigeria (CBN) strategy of stabilising the nominal exchange rate.
“External liquidity pressure from the current account deficit will be aggravated by outflows of foreign portfolio investments,” he said. Continuing, he added: “The drop in oil, revenue will lead the federal government to record a deficit of six percent of GDP in 2020 and 5.4 percent of GDP in 2021. “In addition to the financing needs from the budget deficit, Nigeria faces around 0.3 percent of GDP in maturities coming due on external debts per year in 2020 and 2021.”
To cover the funding gaps, Harb said, “The government plans to borrow, around 1.4 percent of GDP from multilateral donors, which will cover around 20 percent of the federal government’s deficit in 2020 on the average forecast, but additional multilateral loans remain possible.”
He noted that the measures put in place by the government to minimise the shock from COVID-19 and drop in oil price, including the limited adjustment of the exchange rate, tightened foreign currency supply and continued interventions to defend the exchange rate, would only contain short term liquidity pressures and would boost foreign exchange reserves in the short term.