NEW YORK | ABUJA - Tumbling oil prices have been a gift to some but they’ve blown a huge hole in Nigeria’s balance sheet which some fear may set the once promising African economy into a tail spin.
What could be worse than finding you have a trillion dollar budget gap and an insurgent group that threatens to hit whatever oil wells remain?
Nigeria startled the finance markets by announcing plans to ask the World Bank and the African Development Bank for a $3.5 billion loan.
CNN Money bluntly headlined the story “Nigeria is running out of cash.”
Nigeria's finance minister, Kemi Adeosun, denied the loans were an "emergency" measure, but merely the cheapest way possible to fund the deficit. “It’s my strategy for borrowing for capital projects,” she coyly told the Financial Times.
But the undeniable fact is that since 90 percent of Nigeria’s export revenue comes from the sale of petroleum, according to OPEC, and oil prices have fallen about 70% in the last year and a half, she has to make haste to plug the record budget gap of 3 trillion naira.
President Muhammadu Buhari will face lawmakers in Nigeria’s parliament this week with his proposed 6.08 trillion naira “budget of change” – the country’s largest ever – that aims to stimulate the economy by spending on long-overdue infrastructure projects. But at least one interest group – the Nigerian Medical Association – is already crying foul over a large cut to the health ministry.
Authorities will begin roadshow meetings with investors to sound out a potential sale of $1 billion of Eurobonds in February, Adeosun said. But these carry a heavy interest price tag.
The price of these bank loans is unpleasant to contemplate. They include devaluing the naira and loosening capital controls. End of January, President Buhari made his views known on that program, saying that devaluing the naira was not in the best interests of Nigerians, particularly the poorest citizens.
Meanwhile, Angola, another major oil producer, is seeing hunger in the population as a consequence of shrinking revenues due to the oil price crash. “We can confirm that the level of acute malnutrition across Angola warrants a high impact emergency response,” said the World Vision development agency. Supplies of essential medicines have been disrupted, and in-patient nutrition centers are unable to provide the required level of service,” the group said.
In 2014, oil prices were around $100 per barrel. Currently they are at about $23 per barrel.
Yet another consequence of the low per barrel price has been the rise in big car purchases. The oil plunge is fueling a boom in SUV sales in China – up 60 percent year-on-year in the last three months, while overall passenger vehicle sales are growing robustly at 22 percent.
And after years of stagnation, vehicle miles traveled in the U.S. also ticked higher in 2015. [International Press Syndicate – 2 February 2016]
Photo: Finance Minister Kemi Adeosun