How Low Can the Naira Go?
It is possible that the current collapse in oil prices will force the government’s hand. The allocation to gasoline subsidies has been halved in the 2015 budget—although, with a fall in the wholesale price of oil, it should cost the government less anyway.
It is possible that the current collapse in oil prices will force the government’s hand. The allocation to gasoline subsidies has been halved in the 2015 budget—although, with a fall in the wholesale price of oil, it should cost the government less anyway.
The revised budget, released at the end of November, bases its projections on an oil price of $73 per barrel. Brent Crude is currently below $65.
Fixing the persistent weaknesses in the Nigerian economy would be hard enough, were there not an election looming in February 2015. The People’s Democratic Party has won every election since the return to democratic rule in 1999, and it is likely to win this one, but the cost of doing so has risen. An increasingly tense race, precipitated by attempts to split the party and a strong opposition candidate in Muhammadu Buhari, will mean that there will be expensive pre-election giveaways to state governors and promises to the public. It could be a long time before Nigeria’s political class are able to put a floor under the falling naira with action on reform, meaning that, for the medium term, the economy will remain hostage to oil prices.
