Pwc, the accounting and management consulting firm has released a report showing how the Nigerian economy may perform in the next 2 years.
After working out 3 different scenarios of what could happen to crude oil price this year as well as improvement or deterioration in the security situation in the country, Pwc reached certain conclusions about the Nigerian economy. Some of the basic conclusions are
Economic growth
Pwc expects the Nigerian economy to continue to grow even if crude oil prices fall to $35 per barrel or average $45 per barrel this year. This is because Nigeria has a large services and agricultural sector that is not dependent on the performance of the oil sector. However, the Nigerian economy will not continue to grow if Boko Haram attack increases or if there is a resurgence of the Niger Delta crisis coupled with a steep drop in crude oil prices.
Exchange Rate
Pwc expects that the official exchange rate will not change much from what it is currently (N199/$) provided that crude oil prices remain at the current average price of $65 per barrel. However, if crude oil prices drop from current levels, there is likely to be about a 10% fall in the value Naira which could get worse if foreign investors panic or the security situation deteriorates. The official exchange rate of the Naira could fall as low as N280 to the USD ($) by the end of 2016.
Inflation
Nigerians should expect to pay more for goods and services as Pwc expects inflation to go up in the next two years. In the base case, prices could go up by just about 3 percent but could also rise as much as 20% in the next 2 years depending on how low crude oil prices fall and its impact on the Naira.
Government revenues
Pwc paints a gloomy picture for government revenues going forward. Pwc sees government revenues dropping significantly going forward by as much as $21 billion when compared to their 2013 levels. The impact will be that state governments, already owing salaries, will fall further back in salary payments and even the Federal Government is expected to start falling behind in salary payments by as much as 3 months in the worst case.
Pwc advises the government, companies and individuals to devise strategies to reduce the negative impact of the worst case scenario.
