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‘Coronavirus: Oil slump may deplete external reserves to $33bn’ - Edoman - 03-04-2020
‘Coronavirus: Oil slump may deplete external reserves to $33bn’
March 4, 2020 Tony Chukwunyem
![[Image: international-oil-companies-IOCs.png?fit...C344&ssl=1]](https://i0.wp.com/www.newtelegraphng.com/wp-content/uploads/2019/03/international-oil-companies-IOCs.png?fit=666%2C344&ssl=1)
Should oil prices fall to $52billion and below as a result of the impact of coronavirus, Nigeria’s external reserves may drop further to $33billion, analysts at Financial Derivatives Company Limited (FDC) have predicted.
The analysts made the prediction in the latest “FDC Commodity Update” obtained by New Telegraph yesterday.
Noting that Brent crude had fallen by 10 per cent in the last one week and by 19.05 per cent in the last one year to $52.66 per barrel, the analysts pointed out that supply and demand concerns may prevent oil prices from heading north.
On supply concerns, for instance, the FDC analysts stated that US crude inventories were expected to rise, even as drop in Libyan oil production would persist due to blockage of that country’s oil fields and ports and as more US sanctions are anticipated on Venezuela’s oil sector.
Similarly, on demand concerns, the analysts stated that in the wake of the rapid spread of the coronavirus, the International Energy Agency (IEA) has forecast global demand for oil to slow to lowest numbers.
Nigeria depends on oil exports for the bulk of government revenue as well as over 85 per cent of its forex earnings. Thus, the FDC analysts believe that the slump in oil prices will, apart from further pushing down the country’s external reserves to $33 billion, will also lead to government revenue dropping below $9 billion, thereby compelling government to increase borrowing to plug wider fiscal deficit.
In addition, the slump in oil prices, according to the analysts, will lead to the naira depreciating below $370/$ at the Investors and Exporters (I&E) Forex window.
Furthermore, they predicted that inflation could rise to 15 per cent, thus causing the Monetary Policy Committee (MPC) to likely raise the Monetary Policy Rate (MPR) to 15 per cent.
Nigeria’s external reserves have been on a downward trend since July 2019, falling from about $45billion to $36.30billion as at February 28, 2020.
It would be recalled that in a recent report, analysts at ARM Research forecast that measures by the Central Bank of Nigeria (CBN) to attract forex inflows, the country’s external reserves would fall to $31billion by the end of this year.
Also, in a recent released a few days ago, one of the big three credit agencies in the world, Standard and Poor’s (S&P) Global Ratings agency downgraded Nigeria from stable outlook to negative, citing the country’s dwindling external reserves among other grounds.