GLOBAL financial services giant, JP Morgan Chase, has raised concerns that Nigeria’s exchange rate could worsen significantly if global crude oil prices continue to fall below $60 per barrel.
In its latest publication titled “Frontier Local Market Strategy: Reducing Risk Further”, released on 9 April, JP Morgan warned that sustained low oil prices may push the USD/NGN exchange rate beyond ₦1,700/$1 and place Nigeria’s current account at risk of slipping into a deficit within months.
At present, the naira trades around ₦1,500/$1, but this level is highly dependent on foreign currency inflows.
“While Nigeria may well avoid a recession,” the report stated, “he substantial decline in oil prices below its break-even of US$60/bbl… would push Nigeria’s current account balance into deficit.”
Budget and oil production woes
As reported by The ICIR, the falling oil price now below $65 per barrel, poses a threat to Nigeria’s 2025 budget, which is based on an oil price benchmark of $75 per barrel.
Compounding the challenge is Nigeria’s failure to meet its 2.06 million barrels per day (bpd) oil production target, even as the naira continues to weaken beyond the budgeted exchange rate of ₦1,500/$1.
A mixed economic picture
JP Morgan’s warning comes despite signs of economic recovery. Nigeria recorded a Balance of Payments (BOP) surplus of $6.83 billion in 2024, a major turnaround from deficits of $3.34 billion in 2023 and $3.32 billion in 2022.
The bank noted that the naira has depreciated by 3.6 per cent against the dollar in the past week, which it considers relatively moderate compared to other similar markets. However, it acknowledged that the currency had been as much as 6.5 per cent weaker at certain points.
“In our view, it’s been as much as 6.5 per cent weaker at some points.
“More importantly, as expected, given the FX market’s significant dependence on CBN flows, the central bank has had to increase its dollar sales interventions to avoid convertibility risks and limit a disorderly move higher,” the firm said
JP Morgan estimates that the CBN sold around $550 million into the market in the past week alone – more than half the $1 billion sold in the entire month of March.
The bank expects further intervention, especially as foreign portfolio outflows are projected to rise. It estimates that foreign portfolio investment (FPI) holdings still stand at over $10 billion, though some of these may be tied up in private placements and not immediately available for sale on the open market.
CBN reports stronger external position
Earlier this week, the CBN announced an improvement in the country’s Balance of Payments, highlighting stronger trade performance, increased investor confidence, and the impact of macroeconomic reforms.
During the review period, Nigeria recorded a current and capital account surplus of $17.22 billion, driven by a $13.17 billion trade surplus in goods.
- Petroleum imports dropped by 23.2 per cent to $14.06 billion,
- Non-oil imports fell by 12.6 per cent to $25.74 billion,
- Gas exports surged by 48.3 per cent to $8.66 billion,
- Non-oil exports rose by 24.6 per cent to $7.46 billion.
Strong remittances support economy
Remittance inflows also showed resilience:
- Personal remittances increased by 8.9 per cent to $20.93 billion,
- IMTO (International Money Transfer Operator) inflows climbed by 43.5 per cent to $4.73 billion, up from $3.30 billion in 2023.
Outlook hinges on reforms, external factors
JP Morgan concluded that Nigeria’s economic outlook will depend largely on how well the country manages external shocks and maintains momentum on economic reforms amid global uncertainties.