- Unable to borrow to fund projects
Some economic analysts appear to be seeing danger ahead for Nigeria in the coming year. It is a double whammy for a country marching towards a general election the back on which concerns are already forcing many domestic and foreign investors to pull funds out and taking them to safer climates.
So, 2019 may be a season of anomie for Nigeria and Nigerians as the country’s economic fundamentals begin to crack, raising the sceptre and prospect of another economic recession, a steep rise in exchange rate and capital flight early in the new year.
The economic research group, SB Morgen, and its team of analysts, has, in an exploratory journey into 2019, raised the alarm that falling oil prices, even below the budget benchmark of $60 per barrel, would make the already strained revenue profile of the country untenable, leading to some damning economic consequences.
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According to the research group, the effects of reduced oil production quota for Nigeria and the falling prices of crude oil are many.
“First, the government’s already strained revenue position will become totally untenable, and we predict that debt service to revenue ratio will reach 80%, limiting Nigeria’s ability to continue to borrow money internationally,” the group said.
While hinting that the government would try to continue with its defence of the naira in the first half of the year for political reasons, which may result in relative exchange rate stability, it nonetheless predicts a steep rise in the exchange rate by between 30% and 40%, once the elections are over.
“We expect that the government will attempt to control this price for as long as it can, opening arbitrage windows akin to 2016 and leading to significant capital flight,” the report said.
Continuing, the firm said it expects the trend of poor budget performance to continue, due to the precarious revenue profile of the central purse, which will make key investments impossible.
“Whatever the new wage structure that is negotiated with the unions ends up to be, unpaid salaries will remain a clear and present reality.
“Another impact of poor budget performance will be an inability to continue to fund some of the social intervention programmes the government is currently championing.
“As we do not expect the policy choices to be different, it is likely that Nigeria will face another recession in 2019,” the report said.
Just last Friday President Muhammadu Buhari held a closed door meeting with the 36 state governors in Abuja where he told them about the poor state of the economy and the treasury.
Abdulaziz Yari, the governor of Zamfara State, who also doubles as the chairman of the Nigerian Governors’ Forum, while briefing journalists after the meeting said the Buhari told them to prepare for tough times ahead.
According to him, the president informed the governors that “the economy is in bad shape and that we have to come together, think and rethink on the way forward.”
It’s the first time the government would openly be admitting that its efforts at turning the economy round has not been succeeding.
On Friday, crude oil price further crashed to $51 per barrel, fuelling fears that many oil producing countries which rely on petrol dollar for their national expenditure may have a difficult year ahead.