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Economic outlook for the country has shifted remarkably as the Federal Government’s deficit budget is likely going to fizzle out due to rise in crude oil prices to above $65 per barrel in the international markets, Renaissance Capital has stated. The subject of revenue generation and the possibility of huge deficit financing has been a nagging one for the Federal Government that has been battling to survive in the face of dwindling revenue occasioned by the realities of the global financial crisis.
Nevertheless, in recent times, the 2009 outlook for Nigeria has shifted remarkably, as the oil price averaged $43.3 per barrel in the first quarter of 2009 as against $54.5 per barrel in April-May, and $59.2 per barrel in May alone. Currently crude oil prices in the international markets are nearing $70 per barrel.
This compares with the benchmark price of $45 per barrel in Nigeria’s 2009 budget, despite ebbing production.
Based on the movements in crude oil prices, Renaissance Capital said Nigeria’s current account deficit which was incrementally tilted to the downside could attain a neutral balance, thus revising the level of deficit financing the Federal Government would have been forced to borrow money to finance.
Probably based on the new crude oil price realities, Bismark Rewane, chief executive of Financial Derivatives in his monthly economic report for June, recalled that Nigeria has consistently outperformed the world GDP growth rate over the years and is now expected to outperform the sub-Saharan Africa (SSA) average in 2009 and 2010.
The two projections by the Economic Intelligence Unit (EIU) and the International Monetary Fund (IMF) are substantially lower than the eight percent estimation of the CBN.
The EIU in its April forecasts is estimating a GDP growth rate of 2.7 percent, while the IMF estimates that Nigeria’s GDP will grow at 2.9 percent in 2009 with nominal GDP at $116 billion down from $180 billion.
The EIU makes an assumption on oil production of 1.913 million bpd projected to increase to 2.00mbpd.
Rewane on the other hand said oil production has declined to 1.6 million bpd due to OPEC quota cut and violence in the Niger Delta region.
President Umaru Yar’ Adua had earlier also asked for the review of the mode of financing the N870 billion fiscal deficit.
According to him, some of the modes of financing the deficit as stipulated in the 2009 budget are no longer realistic while some others were over-estimated.
In spite of these draw backs, Renaissance Capital said the fall in private consumption is more significant than that in government consumption.
The fall in revenue can easily be seen in the level of the nation’s exports and imports. Exports are estimated to fall to $43 billion from $100 billion and imports from $59 billion to $47.8 billion.