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FG should adjust budget benchmark for crude oil price — FSDH Merchant Bank

FSDH Merchant Bank has advised the federal government to adjust the $60 per barrel budget benchmark for crude oil price, in view of forecast of lower crude oil price in 2019.

The bank also called for strategies to guard the economy against decline in crude oil export and to build strong structure for non oil export.

The bank made these calls in its monthly economic and financial outlook titled: “Global Developments in January Positive for Nigeria. How Sustainable?”

Speaking at the media presentation of the outlook, Head of Research, FSDH Merchant bank, Mr. Ayo Akinwunmi noted that Nigeria’s economy benefited from development in the global economy which prompted rise in crude oil price and increased foreign portfolio investment (FPI) inflow resulting to accretion to the nation’s external reserves and appreciation of the naira during the month.

He however noted that these developments were temporary and the country needs to prepare for the realities ahead.

He said: “The International Monetary Fund (IMF) revised downwards its global economic growth forecast for 2019 and 2020 citing the negative effects of US – China tariff increases, new automobile fuel emission standards in Germany, sovereign and financial risks in Italy and weak market sentiments in Turkey. Consequently, the IMF has revised downwards its global growth forecast for 2019 and 2020 from the forecast in October 2018 to 3.5 percent and 3.6 percent respectively.

“The expected slow growth in the global economy also supports the FSDH Research view that crude oil price may not rally strong in 2019. Therefore, Nigeria needs to develop strategies to guard against a possible drop in crude oil exports.

FSDH Research noted the possible implications of the foregoing may be pressure on the exchange rate resulting in a movement towards N390 per dollar, increase in the yields on fixed income securities and high inflation rate. The FGN may also limit foreign borrowing in the short-term.

“Crude oil price recovered in January 2019 compared with the position as at close of December 2018. This provides some temporary fiscal relief in Nigeria. Despite the increase, FSDH Research believes Nigeria needs to adjust the Budget benchmark. It also needs to build a strong structure for non-oil exports.

“Crude oil price is forecasted to be lower in 2019 compared with 2018, mostly as a result of expected oversupply in the face of a weak demand occasioned by fragile global economic growth.

According to secondary data available from OPEC’s report for the month of January 2019, the daily crude oil production in Nigeria increased by 0.63 percent to 1.75million barrels per day (mb/d) in December 2018, from 1.74mb/d in November. This is above the production quota from OPEC of 1.685mb/d but below the benchmark in the 2019 budget of 2.30 mb/d.”