Nigeria’s oil export will record a 50 percent fall by end the of this year, due to the impact of the COVID-19 on the economy, according to Fitch Ratings, world’s leading risk analysts.
The expected fall in oil export would consequently result in the country’s current account balance remaining in deficit for three consecutive years in 2019 to 2021
Mahmoud Harb, Director, Fixed Sovereign Team, Fitch Ratings, stated this in a webinar on ‘Sovereign Risk in Nigeria’, saying that the COVID-19 shock has aggravated the on-going pressures on external liquidity in Nigeria.
According to him, the on-going pressures stem, first, from a shift of the long standing current account in plus to deficit in 2019 and increased reliance on portfolio inflows under the Central Bank of Nigeria (CBN) strategy of stabilising the nominal exchange rate.
He explained that external liquidity pressure from the current account deficit will be aggravated by outflows of foreign portfolio investments adding that the drop in oil revenue will lead the federal government to record a deficit of six percent of GDP in 2020 and 5.4 percent of GDP in 2021.
Harb said that in addition to the financing needs from the budget deficit, Nigeria faces around 0.3 percent of GDP in maturities coming due on external debts per year in 2020 and 2021.
The Fitch Ratings Chief stated that to cover the funding gaps, government plans to borrow, around 1.4 percent of GDP from multilateral donors, which will cover around 20 percent of the federal government’s deficit in 2020 on the average forecast, but pointing out that additional multilateral loans remain possible.
He noted that the measures put in place by the government to minimise the shock from COVID-19 and drop in oil price, including the limited adjustment of the exchange rate, tightened foreign currency supply and continued interventions to defend the exchange rate, would only contain short term liquidity pressures and would boost foreign exchange reserves in the short term.
