How the oil price collapse is impacting Nigeria’s 2020 budget

Nigeria, like many oil-dependent countries, is feeling the brunt of the oil price collapse caused by the COVID-19 pandemic. Zainab Ahmed, the Finance Minister of Nigeria, recently announced that the country would need to cut its budget due to declining and volatile oil prices. Nigeria had set its 2020 budget benchmark for oil at $57 a barrel, but with the current scenario, adjustments are inevitable. Bismarck Rewane, the CEO of Financial Derivatives, shed light on the various dimensions through which Nigeria must view the current economic challenges. In a recent interview on CNBC Africa, Rewane highlighted three key dimensions that need to be considered - the biological dimension, the exposure to Chinese technology and investments, and the vulnerability of Nigeria's oil sector. Firstly, in terms of the biological dimension, Rewane pointed out that while the overall population of Nigeria might not be severely impacted by COVID-19 due to its younger demographic, key decision-makers and leaders are more vulnerable. This highlights the need for targeted strategies to protect the workforce that drives the economy. Secondly, Rewane emphasized the importance of assessing Nigeria's exposure to Chinese technology, trade, and investments. With China being a major player in the global economy, any disruptions in Chinese markets can have ripple effects on Nigeria. It becomes crucial for Nigeria to diversify its trade relationships and investments to mitigate risks. Thirdly, the vulnerability of Nigeria's oil sector cannot be overlooked. The plummeting oil prices have put pressure on oil-dependent economies like Nigeria. With the country's external debt at $27 billion, the revision of the budget benchmark for oil becomes imperative. The adequacy and appropriateness of the new budget benchmark will play a vital role in determining Nigeria's resilience in the face of economic shocks. When comparing Nigeria's economic health in the current scenario to that of the 2008 global financial crisis, Rewane pointed out significant differences. Nigeria's external debt has multiplied nine times since 2008, while foreign reserves have dwindled. This calls for a strategic and aggressive approach from policymakers to navigate the current economic challenges. As Nigeria contemplates revising its budget benchmark for oil, Rewane refrained from preempting the decision but highlighted the importance of timely and appropriate measures. The approval of the new budget benchmark by the national assembly will be crucial in aligning Nigeria's fiscal policies with the current economic realities. In conclusion, the road ahead for Nigeria's economy is paved with uncertainties and challenges. The choices made by policymakers in terms of appropriateness, adequacy, and timing of strategies will be instrumental in determining Nigeria's economic resilience. The coming weeks will be crucial as Nigeria grapples with the implications of the oil price collapse and seeks to safeguard its economy from further harm.