The Central Bank of Nigeria (CBN) has revealed that the removal of fuel subsidy, lower crude oil earnings, high import bills and debt servicing obligations could harm external reserves. These key indicators, according to the bank, pose potent dangers for the economy. This is contained in the latest CBN’s Monetary Credit, Foreign Trade and Exchange Policy Guidelines for 2024-2025 fiscal years. The revelation came ahead of the apex bank’s 297th Monetary Policy Committee (MPC) meeting slated for September 23-24.
The apex bank has also expressed optimism that Nigeria’s external sector remains bright this current fiscal year through next year on the expectation of favourable terms of trade and improved domestic crude oil production and projected gains from capital flows of $2.35billion and other remittances that may stabilise the value of the naira. Nevertheless, the identified challenges contained in the Monetary Credit, and Foreign Trade guidelines must be addressed. The fiscal and monetary authorities need to brainstorm on new strategies to revamp the economy. As of September 12, 2024, Nigeria’s external reserves stood at $36.865billion. It dropped to $36.62billion on August 12, 2024 from $36.87billion recorded a week earlier. This represents 0.68 per cent. CBN data showed that in nine days in August, foreign reserves dipped by $342 million largely due to medical tourism. It confirmed CBN’s forecast in July that the external reserves would dip this year as a result of debt servicing and other obligations.
In 2023, the external reserves dropped to $33.09billion. Unfortunately, the expected improvement in crude oil earnings and last year’s reforms in the forex market did not cushion the drop in the external reserves. Also, the sustained monetary policy of the CBN did not help matters. Lower crude oil earnings have worsened the situation. For instance, Nigeria lost N720billion in revenue as a result of decline in crude oil production between February and March 2024, partly due to oil theft.
Nigeria’s inability to ramp up production in the two months resulted in Nigeria missing its crude oil production benchmark for the 2024 budget. The budget was predicated on oil production benchmark of 1.78mbpd. But OPEC monthly report for April showed that Nigeria’s crude oil production, excluding condensates, dropped to 1.231 mbpd, the second consecutive monthly decline since the beginning of 2024. This represents a decline of 3 per cent in real Gross Domestic Product (GDP) or 7 per cent in oil production, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
It is shocking that while other oil exporting countries are recording tremendous economic advantage from rising oil prices in the international market, the reverse is the case for Nigeria, with consumers being compelled to buy petrol at higher prices per litre by the Nigeria National Petroleum Company Ltd (NNPCL). However, Saudi Arabia’s Aramco declared a 124 per cent increase in profit of $110billion in 2021. Contrastingly, Nigeria’s oil and gas sector contracted by 8.1 per cent in Q4, 2024, resulting in economic loss of $14.26billion in 2021. Although the NNPCL declared recently a profit of N3.3trillion in 2023, many Nigerians still believe that its administration is devoid of transparency and accountability.
Another worrying aspect of the economy is the rising import bills. The CBN disclosed that Nigeria imported $689.88million (N903billion) in the first Quarter 2024. This represents a 5-year high as money spent on food import surged to N95.28 per cent from N471.4billion recorded in the corresponding quarter of 2023. From January to September 2021, Nigeria spent $1.68billion on food imports. Similarly, the National Bureau of Statistics (NBS) monthly Consumer Price Index released recently showed that the average price index for imported food rose to 806 percentage points in June 2024, and on a month-on-month basis, imported food inflation jumped to 36.36 per cent in June. Since 2012, Nigeria has had an average outrageous food import bill of $11billion per annum.
The economy cannot show appreciable growth with our over-dependence on imports. The emphasis should be on increasing our non-oil exports. It is commendable that the CBN has identified some of the hurdles facing the economy. Beyond that, it should work with the fiscal authorities to initiate new strategies to rejig the economy. It needs recovery and sustainable growth. There is indeed no room for excuses any more. It is time to chart a new course for the economy. The government may consider the reversal of fuel subsidy removal and other policies that have fueled the current economic hardship Nigerians are grappling with.
Nigeria’s ballooning debt stock should be checked before it is too late. Nigeria has total debt stock stands of N122.67trillion or $91.46billion. According to the CBN, the government spent about 66 per cent its dollar earnings on debt servicing from January to May 2024. Out of the $3.3billion in total outflows made during this period, about $2.19billion was used in servicing external debt. This has put Nigeria’s Debt- to-revenue- ratio in critical situation. The Debt Management Office (DMO) revealed that Nigeria’s debt obligation to China alone increased by almost half a billion dollars in the past 30 months to $5.16billion.