Oil prices have dropped by more than 60 per cent between June 2014 and January 2015, but have recently shown signs of recovery.
Brent crude, against which Nigeria’s oil is priced, bounced back from six-year low to around $60 per barrel in January, while the United States’ benchmark West Texas Intermediate fluctuated around the $50 mark.
Brent for June delivery was up 17 cents at $62.25 a barrel. U.S. crude for June delivery was 37 cents lower at $56.24 a barrel.
As at Tuesday, Nigeria’s Bonny Light stood at $58.84, which is still higher than the Nigeria’s budget benchmark of $52 per barrel.
Meanwhile, the Executive Board of the International Monetary Fund (IMF) has commended the Federal Government for progress in promoting the economic diversification and for their macroeconomic response to collapsing export prices.
Directors noted, however, that vulnerabilities remain high in view of the uncertainties about oil price, security, and the political situation, and concurred that additional policy adjustments and broader structural reforms will be necessary in the period ahead to reconstitute buffers, mitigate risks, and meet pressing development needs.
They agreed that tightening fiscal policy and allowing the exchange rate to depreciate while using some of the reserve buffer were appropriate responses to the recent fall in oil prices.
Nonetheless, Directors stressed that achieving the authorities’ fiscal targets will require a careful prioritization of public spending and a cautious implementation of capital projects.
They also highlighted the importance of improved budgeting at the level of state and local governments to help better manage their fiscal adjustment.
Directors agreed that mobilizing additional non-oil revenues is critical to open up fiscal space and improve public service delivery over the medium term.
They welcomed ongoing initiatives to strengthen tax administration, and encouraged the authorities to also rein in exemptions, keep tax rates under review, persevere with subsidy reform, and improve the management of oil revenue.
Directors saw merit in reviewing the current revenue sharing arrangements to help address regional disparities over the longer term and ensure that social and development needs are addressed.
Directors welcomed the recent unification of the foreign exchange rates, noting that greater exchange rate flexibility could help cushion external shocks. As the largest single supplier of foreign exchange, it will be important for the central bank to intermediate this supply in a transparent, efficient, and fair manner.
It noted that financial soundness indicators remain above prudential norms, but the concentration of credit risks and foreign currency exposures call for continued close oversight.
They welcomed progress in strengthening supervision and regulation, including of cross border activities, and encouraged additional initiatives to foster financial market development, including of hedging instruments, and improve financial inclusion.
Directors emphasized that Nigeria’s longer term prospects rest on lowering oil dependency and strengthening private sector’s participation in economic activity.
Lasting and more inclusive growth calls for improving the business environment, promoting youth and female employment, and advancing human capital development.
Directors noted that Nigeria’s economic data are broadly adequate for surveillance. Nonetheless, they encouraged the authorities to further improve statistics, in particular as regards the balance of payments.