Twice in three months, the impact of the pandemic forced Nigeria to revise its benchmark on oil production and price, from 2.3mbd and $57/b to 1.9mbd and $28/b.
In a recent report titled: ‘Nigeria Development Update 2020,’ the Bank stated that prices of crude oil are expected to remain low, no thanks to persistent supply glut and equally shaky Nigerian trading partners.
“Oil prices are expected to stay below pre-pandemic levels in 2020–21 because of slowed economic activity and a persistent supply glut. After averaging $65 per barrel (bbl) in 2019, the baseline scenario for this report assumes that prices of Nigerian crude oil will average $30/bbl in 2020 and $40/bbl in 2021.
“Oil prices are projected to begin recovering gradually in second half of 2020, but accumulated inventories will continue to push prices down through 2021 even as global demand recovers, and the Covid-19 crisis subsides,” stated the Washington based global body.
It said that going forward, Nigeria needs resolute reforms targeting a sustained economic recovery. It noted that while Nigeria has managed the Covid-19 outbreak, and the authorities carried out a package of economic-relief policies in 2020, the country’s economy would still contract by at least three per cent.
“Government’s (Nigeria) oil revenue would be down by over 70 per cent, cutting total general government revenue to 5.35 of GDP for the year,” World Bank said.
It further stated that faced with large and widening fiscal deficits, mounting pressure on health spending, and less room to borrow, “Nigeria can be expected to cut capital spending, especially subnational, further diminishing its already low levels of investment and limiting service delivery at all levels.
“Falling domestic demand, which is sensitive to oil-dollar liquidity, will cause the non-oil economy to contract. With manufacturing and services hit hard by COVID-19 in April–May 2020,” it added.
According to the report, global economy will contract by at least 5.2%, affecting several Nigeria’s trading partners.
By April, Nigeria’s crude oil prices had fallen to $20 a barrel; down nearly 70 per cent in three months. “After this extraordinary oil-price shock, which led to a steep drop in oil production, oil revenues are expected to fall from 3.2 per cent of GDP in 2019 to about 1 per cent in 2020.
“Though oil production is expected to stabilise, it would not immediately contribute much to growth because investment in the sector is likely to remain subdued,” the Bank stated.
Chibisi Ohakah, Abuja