Nigeria may resume borrowing again as OPEC mischievously up supply to 14-month high • Analysts see 2015 as year of uncertainty

As oil prices continue to drop, for Nigeria, it appears the days of boom are gradually giving way to a new era of gloom. The boiling point of the transition may see Nigeria going to the old foes or friends, cap in hand, asking for a loan to weather the storm brewed by unseen forces.
A survey by Bloomberg has not brought any good news to oil producing countries like Nigeria. It said, oil prices are set for biggest monthly drop since 2012 on global oversupply – West Texas Intermediate headed for the biggest monthly decline in more than two years amid signs that OPEC boosted output to a 14-month high even as crude slumped into a bear market.
Production from the 12-member Organization of Petroleum Exporting Countries increased by 53,000 barrels a day to 30.974 million, a third monthly gain, a Bloomberg survey shows. Traders are split on whether Saudi Arabia will deepen the crude price cuts that propelled oil into a bear market this month. WTI and Brent have fallen more than 20 percent from their June peaks, meeting a common definition of a bear market, as leading OPEC members are resisting calls to cut output.
Global supplies are rising, with the U.S. pumping at the fastest pace in more than three decades while Russia’s production climbed to near a post-Soviet record.
It is unclear whether the United States and Saudi Arabia are working in unison to undermine global prices of crude oil.
For Bismarck Rewane, chief executive officer of Financial Derivatives Company (FDC) Limited, what that portend is the rising probability of 2015, being a year of uncertainty.
Rewane said, with 2014 drawing to a close, the potential risks to the Nigerian economy are key considerations for investors and managers towards the 2015 planning cycle. Most economic indicators have been relatively stable in 2014 as a result of a strong growth, benign inflation, a restrictive interest rate policy, among others.
His current worry is that, recently, some of these variables have been volatile. The persistent decline in oil prices is becoming an increasing source of concern. This is because of its impact on Nigeria‘s revenue and the exchange rate. He added that it also puts investors’ confidence at risk. This threat to Nigeria‘s macro-economic stability is compounded by the continued activities of Boko Haram and the upcoming 2015 general elections, which is likely to be accompanied by increased political spending and violence.
Razia Khan, Managing Director, Head – Africa Macro, Global Research,Standard Chartered Bank, London in an e-mail reply to questions by National daily said, clearly, with oil prices falling, there are growing concerns over how Nigeria will fund its budget. While the budget breakeven is set at $77.50, the actual budget sensitivity may kick in at an even higher price of oil, as the amount of oil produced falls short of 2.39 million barrel per day (bpd) assumed in the budget. Given that it is not possible – especially in the very short-term – to cut spending very significantly – what does Nigeria do?
“With public debt ratios still very low, there is room for Nigeria to borrow. However – especially in an environment of pressured oil prices – Nigeria’s perceived creditworthiness and its ability to borrow in more sizeable amounts will very much depend on investor perceptions of oil price trends.
Investors are likely to be cautious given Nigeria’s dependence on oil for 70 per cent of its consolidated government revenue and over 90 per cent of its foreign exchange earnings”, she said.
Khan laments that, although Nigeria’s economy is diversified, the lack of progress so far in raising non-oil revenue mobilisation to much more comfortable levels (it is currently thought to total less than five per cent of GDP) may constrain Nigeria’s ability to borrow in an environment of much weaker oil prices.
Clearly, with the level of dependence on crude oil earnings, even when Nigeria will want to borrow, it might be at higher cost.
“So at precisely the time that Nigeria may need to borrow, the price at which it is able to borrow will increase. It creates a tough environment all round, as the existing debt service costs will already weigh on the budget”, she said.
Nigeria’s neighbor – Ghana is already into borrowing from the International Monetary Fund (IMF) in what many analysts claim, it is in an uneasy union.
Ghana is turning to the IMF as it struggles to narrow a budget deficit and curb spending that prompted Fitch to cut the country’s debt outlook to negative in March. Nigeria’s naira is down 2.8 percent this year against the dollar. Ghana’s cedi is the worst performer in Africa in 2014, weakening 26 percent.
In Ghana, the world’s second-biggest cocoa producer, the IMF “is looking for some pretty tough upfront fiscal adjustment, which was far beyond what they were planning,” Fox said. “There’s a big gap between them.”
The cedi strengthened 15 per cent since August 4, when President John Dramani Mahama ended four months of contradictory statements on whether Ghana would seek IMF aid. It gained 0.2 percent to 3.2201 per dollar in Accra.
The nation will receive about $800 million as soon as January that will help stabilize the cedi, Finance Minister Seth Terkper said in an interview with Bloomberg TV Africa in London on October 20.
“It may take longer than that depending on what the Ghanaians are prepared to do,” Fox said. Fitch affirmed Ghana at B, five steps below investment grade, on Sept. 26. Nigeria is rated BB-, two levels higher than Ghana, with a stable outlook as of October 3.

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