Financial Energy Review
,……as Nigeria’s Big Ticket Oil Importers Shrink Bills………
by Ben Ndubuwa………
The Central Bank of Nigeria (CBN) has blamed decline in export receipt and speculative activities of Bureau De Change as the major factors responsible for the further plunge in the Naira against the dollar.
This plunge has also been attributed to the inability of the government to diversify it’s export earnings which has further put pressure on the nation’s dollar earned from oil.
Furthermore, two major countries, China and India have shrinked their oil import receipts from Nigeria in the last couple of weeks.
For instance, China’s imports of crude oil have been trending much lower than in the past four months, while the rest of Asia is also significantly slowing imports this month with demand still under pressure, IHS Markit said on Friday.
Crude oil discharged at Chinese ports in the last two weeks were below 8 million barrels per day (bpd), at levels similar to what China imported in March and April, Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, at IHS Markit, said in an analysis.
India’s Minister of Petroleum Dharmendra Pradhan told the country’s Parliament on recently that the slump in international oil price benchmarks India’s crude oil import bill to US$12.4 billion in April-July, the first quarter of India’s fiscal year.
According to him this sum, represents imported 57.2 million tons of crude oil, compared to imports of 74.9 million tons worth US$36.2 billion for the same period of 2019. A huge reduction of $23.8 billion from India’s oil import bill.
Therefore India paid much less for the crude oil imported between April and July 2020 compared to the same period last year
For these reasons the declining in Nigeria export receipts from oil and speculative activities of the Bureau De Change operators among other challenges of the COVID-19 pandemic on the economy have further put more pressure on the naira.
The Central Bank of Nigeria said this in its report on ‘Monetary, credit, foreign trade and exchange policy guidelines for fiscal years 2020/2021’.
The value of the naira plunged further as it exchanged at 465/$ on the parallel market on Monday, after it exchanged at 460/$ on Thursday.
It had earlier exchange at 430/$ when the CBN commenced forex sales to the BDCs earlier in September.
Sequel to the COVID-19 pandemic, it said, the viability of the external sector in 2020 was expected to deteriorate, given the present worsening current account balance and depletion of external reserves driven, largely, by decelerating export receipts, particularly oil.
Specifically, it added, the degree of external reserves accumulation was expected to decelerate as outflows were expected to outweigh inflows.
As a result, external reserves were expected to lie between $29.9bn and $34.3bn at end-December 2020 (predicated on current declining oil price between $20 and $40).
“This development, in addition to exchange market pressures, emanating from speculative activities in the BDC and I & E segments of foreign exchange market, is expected to exert pressure on the naira exchange rate,” it stated.
In addition, the bank said increased risk aversion behaviour by investors may negatively impact on capital inflow as they flee to safe-haven assets.
Also, it projected that the fiscal space may be limited in 2020, given escalated vulnerability, as a result of sharp decline in oil prices, occasioned by weak global oil demand and price wars between Russia and Saudi Arabia.
This development would undermine the implementation of government’s capital programmes, impede public investment on infrastructural development and could culminate in higher debt profile and attendant debt service obligations of the government.
If the COVID-19 pandemic effects became severe, government may increase fiscal policy responses to ameliorate the impact on the populace, it stated.
The financial sector was expected to remain resilient in 2020 on account of the accommodative monetary policy stance, continued efforts by the bank towards ensuring financial system stability and credit expansion policies.
Furthermore, it added, the renewed policies aimed at enhancing the payments system and cash-less initiative are expected to sustain efficiency, safety and confidence in the Nigerian payments system.
