President Muhammadu Buhari Presenting 2020 Appropriation Bill to a Joint Session of the National Assembly, in Abuja, FCT

On Coronavirus, tumbling oil price and Nigeria’s Budget 2020

* Lower government revenues, rising consumer prices threaten economy

Alexander Davis | ConsumerConnect

As one of the far-reaching effects of the fast spreading and upsetting Coronavirus, otherwise known as COVID-19 in several economies across the world, the Nigerian budget estimate also appears threatened as oil price drops US$5 below the 2020 benchmark on global fears over the damaging impact of epidemic.

Reports say Brent Crude, which is the international benchmark for crude oil, recently traded at $51.95 per barrel.

This figure is reportedly $5 lower than Nigeria’s $57 crude oil price benchmark in the Federal Budget 2020.

The United States West Texas Intermediate, WTI, traded at $47.31 per barrel, down 2.91 percent.

According to the International Energy Agency (IEA), global oil demand will witness its first contraction in a decade because the Coronavirus outbreak has resulted in a partial shutdown of the Chinese economy, largely regarded as the second largest economy in the world.

However, as far Nigeria is concerned, this it was learnt “does not tell a good story as the country depends on crude oil for an estimated 90 percent of export earnings and more than 50 percent of government revenue.”

The outbreak has also affected businesses and governments across the world as the supply of some raw materials have been delayed and conferences cancelled.

On the impact of reduced oil prices on Nigeria’s economy and probable risk of a recession soon, Lukman Otunuga, FXTM research analyst, reportedly said the recession would continue to hang over the Nigerian economy for as long as crude oil remains the primary source of revenue.

“Falling oil presents negative consequences for the economy, especially when considering how roughly 90 percent of export earnings and over 50 percent of government revenues are from crude exports,” he said.

According to Otunuga, “What is even more alarming is Nigeria’s 2020 budget which has set the benchmark for oil at $57.

“With Brent and Crude both depreciating over 15 percent since the start of 2020, it raises tough questions whether Nigeria will meet its oil revenue goal of N2.64 trillion.

“The woes do not end here. Foreign Exchange reserves are poised to decline on lower oil which not only complicates the Central Bank of Nigeria’s (CBN) efforts to defend the Naira but raises the risk of inflation running rampant.

“The toxic combination of lower government revenues, rising consumer prices and weakening local currency is more than enough to threaten Nigeria’s fragile economic recovery.”

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