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The Central Bank of Nigeria (CBN) resistance to rebuilding the exchange-rate framework, will drive a fall in international reserves to $23.3bn by December 2020, Fitch rating revealed.
The rating agency has confirmed that this production cut would trigger a likelihood of a recession and fiscal deficits.
But the risk of disruptive activities such as interest rate and national productivity adjustment would persist, the agency added.
Recently, OPEC and its partners, led by Russia, a group called OPEC+, agreed in April to cut output by 9.7 million BPD in May and June, representing about 10 per cent of global supply.
Nigeria has also planned to cut down oil production by 417,000 to 1.41 million Barrels Per Day (BPD) in May and June, said the Minister of State for Petroleum Resources, Timipre Sylva.
The rating agency said the increased source of help in a difficult situation to concessional multilateral loans would ease near-term liquidity pressures.
According to Fitch, there are the assumptions that Nigeria will comply fully with the production caps under the OPEC+ agreement and have reduced their forecast oil output to 1.88 million BPD (including condensates) in 2020.
And 1.87 million BPD in 2021, compared with their earlier forecast of 2.1 million BPD for 2020 and 2021.
“We have adjusted our Gross Domestic Product (GDP) forecasts, and now expect Nigeria’s economy to contract by three per cent in 2020 before a recovery to three per cent growth in 2021.”
“Despite the OPEC+ deal, our oil price forecasts remain unchanged at $35/barrel for Brent on average in 2020 and $45/barrel in 2021,” Fitch added.
The rating agency revealed that the little depreciation of the Naira has made Nigeria’s foreign-currency reserves drop by $5bn from January to April 2020, the main reason why the CBN reflects moves to tighten foreign-currency access, containing capital outflows temporarily.