FG Broke Despite Increase In Oil Prices—Rewane

…Says Naira Over-Valued By 40.9%, To Exchange At N600 During Easter

Despite the rise in crude oil prices in the international market, the Federal Government is still cash strapped and finding it difficult to finance its operations without resorting to borrowing, the Managing Director/Chief Executive of Financial Derivatives Company Ltd, Mr Bismarck Rewane has said.

He said this in a presentation at the Lagos Business School, which was made available to THE WHISTLER on Sunday.

Brent crude which is Nigeria’s crude oil grade is currently selling at $104.39 to a dollar which is above the $60 per barrel federal government 2022 budget benchmark price of crude oil.

Rewane said while swap deals are tapering oil revenue, tax revenues are also slowing as a result of the hostile business environment.

He stated that this has affected disbursements made by the Federation Account Allocation Committee to the three tiers of government.

Specifically, the Financial Derivatives Boss said FAAC disbursements have gone down by 10.67 per cent to N621.68bn in the first quarter of 2022 as against the N695.94bn recorded in the fourth quarter of last year.

He noted further that subsidy payments have added to revenue challenges as the Nigerian National Petroleum Company Ltd continues to maintain monthly deductions from FAAC remittance.

The development, according to him, has increased the level at which the federal government currently borrows to fund the fiscal gap.

Nigeria has been running a fiscal deficit to Gross Domestic Product in excess of the three per cent threshold over the last five years. The deficit has been projected to hit six per cent by the end of this year.

Rewane said, “FG still cash strapped despite increase in oil prices. Oil production sub-optimal leading to capping impact of higher oil prices. Swap deals also tapering oil revenue.”

On inflationary pressure, he predicted that headline inflation would rise from the current 15.7 per cent to 15.9 per cent in March.

He noted that this may force the Monetary Policy Committee of the Central Bank of Nigeria to raise the benchmark lending rate by 50 basis points in a bid to contain inflationary pressures.

An increase in Monetary Policy Rate by 50 basis points would push the benchmark lending rate from the current 11.5 per cent to 12 per cent.

He said, “Negative real rate of return widening as inflation rises amid steep decline in Treasury Bills. There will be dis-savings as the negative real rate of return increases.

“CBN likely to adopt a tighter monetary policy stance to contain inflation. Will most likely push up lending rates.

“Next MPC meeting scheduled for May 24/25. Monetary policy tightening likely as inflation spirals.”

On the pressure being faced by the Naira in the foreign exchange market, Rewane said that the Naira is still overvalued by over 40 per cent and that the currency could exchange for N600 to a dollar during Easter period.

The naira is currently exchanging at N587 to a dollar at the parallel market.

He added. “Naira fundamentals seems stronger in 2022. However, the currency pressure persists as supply shortage continues. Naira is overvalued by 40.94 per cent

“Parallel market rate down to N587.5/$, likely to cross N600/$ at Easter.”

On the country’s external reserves which is still below $40bn despite higher oil prices, he predicted that this is likely to decline further to $38bn as the CBN continues to intensify its forex intervention.

ENDS