The rising oil price triggered by the ongoing War between Russia and Ukraine, normally
is considered to be beneficial to a major oil exporter like Nigeria, however, the Central Bank of Nigeria (CBN) has indicated that the recent increase in oil prices does not equate to higher revenue nor does it improve the external reserves of the Nigerian economy.
This was disclosed by Edward Lametek Adamu, the Deputy Governor of the CBN at the last Monetary Policy Council meeting held by the CBN.
He stated that inflation remains a major concern for global policymakers and that the war’s adverse consequences are already being felt in Nigeria.
Adamu stated that commodity prices are rising fast as investors embrace gold, and global demand for crude oil appears to outstrip supply, owing to the sanctions on Russia.
However, he believes that Nigeria would not reap the benefits of a rising oil price, stating; “crude oil prices are high and could remain so for some time. Unfortunately, this is neither translating to more revenues for government nor increased accretion to the country’s external reserves.”
He also warned that oil earnings would be offset by fuel subsidies and increased production costs.
“Under this condition, the cost of subsidy on PMS will increase, further limiting the fiscal space for supporting growth. Other downside risks to growth emanating from the war in Ukraine include rising gas prices as well as the cost of some intermediate goods. Manufacturing and agriculture could take a hit from this development,” he said.
He added, “it appears to me that domestic output recovery is severely threatened. In effect, the CBN cannot at this time relent in supporting growth using monetary policy and development finance interventions which have so far proved to be among the economy’s critical safety nets.”
Nigeria’s external reserve fell by 0.36% on Monday, May 9th, to $39.17 billion, down from $39.31 billion the day before.
The fall in external reserves can be linked to the Central Bank’s ongoing intervention in the foreign exchange market to maintain the local currency’s stability in the official Investors and Exporters (I&E) window.
The Nigerian government also increased the Premium Motor Spirit (PMS) subsidy budget amount for 2022 by N442.72 billion, from N3.557 trillion to N4 trillion. The increase in fuel subsidies comes as crude oil prices rise and the FG abandons plans to phase down subsidies in 2022.
Nigeria’s refusal to remove gasoline subsidies, according to Nairametrics, will result in opportunity costs in the areas of health, education, and infrastructure.
Nonetheless, the world bank has also forecasted that Nigeria’s economy is expected to grow by 2.5% in 2022 and 2.8% by 2023. This is owing to the growth being driven by the recovery in non-oil sectors; The bank stated that oil production across the region remained below pre-pandemic levels because of disruptions in maintenance work and declining investment in extractive industries.
