FALLING oil prices and domestic energy output due to declining global demand were a concern for Nigeria’s economy, the country’s central bank governor, Lamido Sanusi, said yesterday.
The worsening situation in the euro zone and rising global food prices might also push inflation higher, Lamido said, adding the country’s slower growth and tighter financial discipline could counterbalance upward effects.
Nigeria rates among the top 10 crude oil exporters in the world. Its budget this year is based on an oil price of $72 (R595) a barrel and oil fell below $90 in recent weeks.
Nigeria exports most of its domestic output and figures show exports have been falling, suggesting falls in output also. Exports are set to fall to 1.81 million barrels a day (bpd) in September, a provisional loading programme showed last week.
“The budget is based on assumptions of output of 2.4 million bpd, and output has been underperforming... so $72 may not be an effective benchmark,” Sanusi said.
“Long before you get to $72, you will have major strains on government revenues, so long as output does not improve.”
Sanusi said the euro zone sovereign debt crisis, along with vulnerability in the US economy and growth slowdown in India and China, were all having an impact.
“The price of oil is affected by global demand. To the extent that the economy remains highly vulnerable to movements in the commodity price, the global outlook is important,” he said, adding that a slowdown in growth in emerging economies was contributing to the drop in demand.
“In 2007, 2008, 2009, when Europe and America were slowing down, China, India and Brazil were there to take the slack... now there is nobody,” Sanusi added.
Nigeria’s Finance Ministry has cut its 2012 growth forecast to between 6 percent and 7 percent.“We would broadly agree that it’s reasonable to expect a slowdown.”
Nigeria’s double-digit inflation of 12.9 percent in June prompted surprise tightening measures from the central bank last week.
The bank left rates on hold at 12 percent, but raised banks’ cash reserve requirement (CRR) to 12 percent from 8 percent and reduced net open foreign exchange positions to 1 percent from 3 percent to support the weakening naira. The currency has recovered from two-month lows since then.
“The increase in the CRR was perhaps far more effective for tightening than an increase in interest rates. Interbank rates have responded, the exchange rates have also responded.
“Interbank rates rose as high as 19 percent this week, we don’t want them to be there, we think there will be moderation, but we think they will be higher than before the tightening.”
Sanusi said inflation forecasts of 14.5 percent peaking in the third quarter were made in January, when the global outlook was more benign.