The rapid spread of COVID-19 has clearly altered the global economic outlook for 2020. Recently, the World Health Organisation (WHO) classified COVID-19 as a pandemic, suggesting a possibility of further shutdown across economies with knock-on effects likely to negatively distort global trade and mobility. This risk is further accentuated by the ongoing oil price war stoked by the failed OPEC+ resolution on oil production cuts.
The domestic economy is not immune to the impact of deteriorating global macros and the broad collapse of major commodity prices. As it stands, the global crude oil price is now c.38.3% lower than Nigeria’s budget benchmark crude price of $57.00/barrel. While the country is currently reeling from the second-order effect of the ongoing crises, we highlight the risk that a graver first-order effect can be unleashed by the further spread of Coronavirus in the country. In this report, we expatiate on the likely implications of these developments on Nigeria, vis-à-vis:
- Weaker dollar earnings for the government
- Wider than expected fiscal deficit and a possible upward revision of planned borrowings
- Possible upward revision of the rate on OMOs
- Increased risks of dollar shortage, slow implementation of capital expenditure in 2020, and weaker-than-expected growth
- Likely repricing of Nigerian risks by FDIs and FPIs
- Increased risk of devaluation due to more aggressive FPI outflows, the weaker balance of payment position, and reduced CBN’s ability to maintain currency defence.
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