Nigerian government finances remain highly vulnerable to oil price fluctuations and Africa’s top oil producer is likely to be affected by a worsening of global economic conditions, central bank Governor Lamido Sanusi said.
“There will be an impact, but it will be nothing compared to the first time,” Sanusi at a conference in Abuja, referring to the impact of the 2008 financial crisis.
Nigeria currently pumps more than two million barrels of oil a day, compared with the situation in 2008 when an insurgency in the oil-producing Niger delta cut output by half, Sanusi said, adding that increased production will deflect some of the impact of decline in demand.
According to the Finance Ministry, Sub-Saharan Africa’s second-biggest economy depends on crude oil exports for more than 95 percent of its foreign income and 80 percent of all government revenue. Nigeria’s 4.5 trillion budgets for this year are based on an oil price of 75 dollars a barrel.
Nigeria is facing serious fiscal liquidity pressures on account of excessive government spending and might benefit from a decline in revenue if it leads to a cut in expenditure, Sanusi said.
The central bank of Africa’s most populous country of more than 150 million people increased its benchmark rate by 275 basis points on Oct. 10 to 12 percent, the highest level since the rate was introduced in 2007, in an attempt to rein in foreign-currency demand and stabilize the exchange rate.
Mounting demand for dollars to fund imports had pushed the naira outside a 3 percentage-point band above 150 per dollar targeted by the central bank and to a record low in interbank trading.
“We should find the naira settling a bit stronger” with the MPC measure, Sanusi said.