Brent Crude hit a 7 year low on Monday trading at a price of $36.5 per barrel as OPEC and other oil-producing countries continue to pump the world with oil in a race for market share. The Brent crude price has now fallen below Nigeria’s target 2016 benchmark price of $38 per barrel for the second day running. The price fell to as low as $36.3 before settling at $37.2 as at 5.30pm Nigerian time.
Lower oil prices spells disaster for a Nigerian economy that relies on oil revenues to fund government expenditure. The fall in oil prices all through 2015 has affected the price of Naira, which now trades at above N260 to the dollar in the black market. The capital markets have also been negatively impacted with stocks down 20% YTD. State government revenues have also dipped in recent months with most states having to rely on a bail out by the Federal Government, to fund recurrent expenditures such as salaries.
The Minister of Finance kemi Adeosun had in a bankers forum held last week mentioned that 2016 will be another tough year for the country suggesting that there may be massive cuts to recurrent expenditure and the need for a deficit financing. Unfortunately, the further Brent drops the more difficult it is for the Government to borrow at affordable rates. Tax revenue which is an alternative source of revenue for the Government could also be in danger of falling below budgeted revenue as businesses are already reporting lower margins and weaker sales.
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