Contrary to early predictions, Nigeria may be in for tougher times as the International Monetary Fund has predicted that crude oil prices may slump to as low as $20 per barrel in 2016.
In the ‘IMF Executive Board Concludes 2015 Article IV Consultation with Iran’ report, the body highlighted that the price of crude oil could drop by between $5 and $15 in 2016, cableng.com reports.
As of Thursday, the price of crude oil in the international market averaged $37. On December 17, the price fell to $36 per barrel.
The Federal Government 2016 budget had based the 2016 budget on a benchmark oil price of $38 per barrel. If the IMF prediction comes true, the country will be in serious trouble as there won’t be any buffer for the budget.
Crude oil revenue accounts for about 90 per cent of Nigeria’s foreign exchange earnings.
Nigeria is projected to produce 2.2 million barrels of crude oil per day in 2016. If it sells at $38 per barrel, it will generate around $83.6m daily or $30.51bn in the entire year.
At $20 as predicted by the IMF, Nigeria will generate $44m daily or $16.06bn next year. This will mean that the country will get at least 47.4 per cent less revenue from oil than what is projected, adding more pressure to the nation’s need to go borrowing in 2016.
According to President Muhammadu Buhari, oil related revenues are expected to contribute N820bn to the economy, while the budget deficit, which is projected at N2.22tn, will be funded by foreign and domestic loans.
If the N820bn expected from oil revenues is cut by 47.4 per cent as a result of the IMF projected decline in oil prices, the nation’s budget deficit will climb by N388.68bn to N2.59tn.