Chineme Okafor in Abuja
The World Bank has estimated that Nigeria will lose up to 70 per cent of its earnings from crude oil sales in 2020 due to the devastating impact of the Covid-19.
In a recent report titled: ‘Nigeria Development Update 2020,’ the Bank stated that prices of crude oil which accounts for majority of Nigeria’s foreign exchange earnings were expected to remain low, supported mostly by persistent supply glut and slowed recovery of the economies of Nigeria’s trading partners.
According to the Washington-based institution, the pandemic forced Nigeria to revise its benchmark on oil production and price from 2.3 million barrels a day (mbd) and $57/b to 1.9mbd and $28/b.
“Oil prices are expected to stay below pre-pandemic levels in 2020–21 because of slowed economic activity and a persistent supply glut. After averaging $65 per barrel (bbl) in 2019, the baseline scenario for this report assumes that prices of Nigerian crude oil will average $30/bbl in 2020 and $40/bbl in 2021.
“Oil prices are projected to begin recovering gradually in second half of 2020, but accumulated inventories will continue to push prices down through 2021 even as global demand recovers, and the Covid-19 crisis subsides,” it added, suggesting that with the right pace of reforms, a sustained economic recovery was possible for Nigeria despite downside risks.
It noted that in a baseline scenario in which oil prices in 2020 average $30/b, the Covid-19 outbreak in Nigeria was contained, and the authorities carry out a package of economic-relief policies in 2020, the country’s economy would still contract by at least three per cent.
The bank stated that: “Government oil revenue would be down by over 70 per cent, cutting total general government revenue to 5.3 per cent of GDP for the year.”
It further stated that faced with large and widening fiscal deficits, mounting pressure on health spending, and less room to borrow, “Nigeria can be expected to cut capital spending, especially subnational, further diminishing its already low levels of investment and limiting service delivery at all levels.”
“Falling domestic demand, which is sensitive to oil-dollar liquidity, will cause the non-oil economy to contract. With manufacturing and services hit hard by COVID-19 in April–May 2020,” it added.
According to the bank, the global economy, and not just Nigeria’s, will contract by at least 5.2 per cent, impacting several of Nigeria’s major trading partners.
It explained that the pandemic has sharply curtailed both oil and nonoil revenue streams at a time when fiscal resources are urgently needed to contain the virus and support economic activity, adding that by April Nigeria’s crude oil prices had fallen to $20 a barrel; down nearly 70 per cent in three months.
“After this extraordinary oil-price shock, which led to a steep drop in oil production, oil revenues are expected to fall from 3.2 per cent of GDP in 2019 to about 1 per cent in 2020.
“Though oil production is expected to stabilise, it would not immediately contribute much to growth because investment in the sector is likely to remain subdued until the price outlook becomes more favourable,” the Bank noted.