The budget for 2020 set by the FGN was based on the oil prices hovering around $57. Unfortunately, due to price wars between Russia and Saudi Arabia and the effects of COVID-19 ravaging the markets, oil prices have reached a low of $28. This has great implications for Nigeria’s budget, given the reliance on foreign reserves that was augmented by the sales of crude oil on the international market.
The government also received an OK from the senate to borrow $22.7 billion. That has now been suspended because of current world events and the trend of the current market.
Recently, the FGN made a “currency adjustment” to the naira, but many quarters insist it was not devalued enough. The CBN is trying to maintain the current value, however the drain on oil reserves and the current events point to further devaluation as this maintenance is not sustainable in the long run.
Sales from crude oil make up half of our government revenue and oil producing states are yet to agree to how to handle the drop in demand given the current situation in the world. Devaluing the naira would lead to an increase in the cost of quite a number of goods and services, most of which are imports purchased by businessmen trading with USDs. This also sounds an alarm on the need to grow manufacturing within our borders.
As the government makes moves to diversify Nigeria’s economy to reduce the over-reliance on crude oil, the urgency to accomplish this has been dialled up as we have come to witness the value of the nation’s budget slashed considerably based on the caprices of the oil commodities market.