Weak Naira: FG mulls cut in growth forecast

The fall in oil prices at the international market that has weakened the naira has also taken a toll on Nigeria’s Gross Domestic Product (GDP), as the Federal Government plans a cut in its growth forecast.

Prices of oil, which have fallen 50 per cent since last June at the international market, have weakened the naira, which has also depreciated by over 20 per cent in the past three months. Oil, from which Nigeria earns about 80 per cent of its revenue and 90 per cent of foreign exchange earnings, has inflicted a hole into the nation’s budget, making policy makers to go back to the drawing board to review downwards, four times, the oil benchmark.

The naira that has been devalued twice in the last four months and which initially exchanged at N168 per dollar at the official market last November currently trades at N199.90. Oil, which also traded at about $100 dollars per barrel, now trades at below $60. Based on these development, Statistician General of the Federation and Chief Executive Officer, National Bureau of Statistics, Dr. Yemi Kale, has said he does not expect a reduction of more than one per cent in the nation’s growth forecast, which was, again, cut to 5.54 per cent in January. Kale, who spoke at the Reuters Africa Investment Summit last Tuesday, said the final figures would be released by June.

Nigeria has lowered its forecast for economic growth in January from 2014’s 6.22 per cent after the government cut spending because of the slump in oil price. “Because of the changes in the macro-variables … we are not sticking with those forecasts any longer. The exchange rate, crude oil forecast have changed,” Kale told Reuters by telephone.

“I’m assuming the growth rate may drop further,” to around four per cent, but again, other sectors may compensate for the drop in oil prices and the depreciation,” he added. Nigeria’s currency suffered its biggest monthly decline in more than five years last month, amid concern over political uncertainty and the ability of the Central Bank of Nigeria (CBN) to manage the currency as oil prices fell.

The naira fell through a psychologically important level of N200 to the dollar in February, prompting the CBN to scrap its biweekly forex auctions, in a de facto devaluation. Kale expects Nigeria’s inflation to inch up to around nine per cent, the upper end of the apex bank’s target, from its January forecast of 8.78 for 2015. More than half of Nigeria’s population of 160 million lives in villages and imports account for only 13 percent of total domestic consumption, Kale said, so the effect of imported inflation has been limited following the devaluation.

He, however, said reforms to the non-oil sector and investments in power and infrastructure should help cushion the loss of revenues from weak oil prices. “The price of commodity (oil) has gone down, but the exchange rate weakness has cancelled the impact on the inflation,” he said. Kale said data on imported capital for the past two years showed a significant amount of foreign capital flowed into the country. But it flowed out as oil prices started to plunge last year, exerting pressure on the currency.