By Omodele Adigun
As President Muhammadu Buhari proposed N16.39 trillion budget for 2022, the inflow of foreign exchange (forex) as well as successful implementation of the Appropriation Bill is hinged on the crude oil prices at the world market.
According to Lukman Otunuga, Senior Research Analyst at FXTM, “given how oil is trading around multiyear highs with the fundamentals favouring further upside, this could be an encouraging development for the budget.”
He explained that, “with a handsome chunk of Nigeria’s export earnings and government revenues from oil sales, the rally in oil could aid Nigeria’s long and fragile road to economic recovery.”
He added: “Regarding the technical picture, oil remains firmly bullish on the daily charts with indicators pointing to further upside. Brent is currently trading around $81.50 with the October 2018 high at $86.71, while WTI is lingering around $78.00 with $80.00 acting as the first level of interest. What does this mean for Nigeria? It is widely known that a massive chunk of Nigeria’s export earnings and government revenues are from crude sales. Rising oil prices may bolster export earnings and foreign exchange reserves. Given how Nigeria is still in the process of a fragile economic recovery from the negative impacts of COVID-19, the jump in oil prices could somewhat brighten the outlook.
“If you thought that Nigeria spent big on its 2021 budget, just take a look at how much is being splashed for the 2022 budget, tagged – Economic Growth and Recovery.
“President Muhammadu Buhari revealed a record N16.39 trillion- budget for 2022, with a forecast 25 per cent year-on-year increase in government spending as the economy nurses’ wounds inflicted by COVID-19. In regards to the deficit, this is projected to rise to N6.26 trillion. Interestingly, the budget is based around Nigeria producing 1.88 million barrels a day with oil prices of $57. Given how oil is trading around multiyear highs with the fundamentals favouring further upside, this could be an encouraging development for the budget. In regards to economic growth, Nigeria is projected to expand by 3 per cent this year after growing by 5 per cent in the second quarter of 2021 while growth is seen expanding 4.2 per cent in 2022.”
“Speaking of GDP, the world bank projected Nigeria to expand 2.4 per cent this year from 1.8 per cent. The semblance of normality from easing lockdown restrictions, vaccine rollouts, and declining trend of covid-19 cases continue to support the outlook. One external factor that could play a key role in the country’s outlook will be oil prices. With a handsome chunk of Nigeria’s export earnings and government revenues from oil sales, the rally in oil could aid Nigeria’s long and fragile road to economic recovery.”
