Economists and financial experts have warned against current low oil production levels and urged the federal government to urgently redress the issue.
According to a mid-year economic report from RTC Strategy and Advisory and RTC Research, both business divisions of Resources and Trust Company Limited, a strategy, policy and business advisory group, the resulting revenue contraction may reintroduce macroeconomic instability (exchange rates in particular) and reverse the progress in the last two months.
Currently, SPDC’s entire Western operations have been shut down while its daily production is now down to 140,000bpd, 85.9% drop from 999,000 produced in 2003.
With attack on other major oil facilities, in the first quarter of the year, the nation’s oil revenue was under-performed by N52.97bn (21.86%) compared to projected N242.27bn while non-oil tax revenue under-performed by N53.6bn compared to projected N144.20bn while other revenues were short by N75.67bn compared with projected N179.87bn
“The major risk as we have highlighted is the return of macroeconomic instability if the sustained low oil production or lower prices cause another severe revenue contraction which impacts foreign currency reserves,” they said.
actions of the new CBN governor, Sanusi Lamido Sanusi in terms of banking sector transparency, emphasizing that though they are positive, they carry short term risks in terms of perceptions of industry stability and profitability. That risk, they said has been mitigated by the guarantee of inter-bank deposits.
At the end of a Monetary Policy Committee meeting held early this month, the Central Bank of Nigeria (CBN) announced a reduction of MPR by 200 basis points to 6 per cent with a 4 per cent standing deposit rate and 8 per cent standing lending rate, removal of all caps and floors on interest rates which the governor described as “unenforceable and counterproductive.”
The apex bank also imposed a 10 per cent maximum portfolio limit on banks’ credits to the public sector while abolishing the 50 per cent provision requirement on public sector loans in favour of the normal prudential guidelines on non-performing credits
“The CBN’s new exchange rate and interest rates policies are positive. Already they have substantially eliminated the parallel market gap and if sustained (and oil production/price problems do not intervene) may moderate exchange rates”, he said.