16 July 2016, Sweetcrude, Abuja – The Director-General of Debt Management Office (DMO), Dr. Abraham Nwankwo, has said that harnessing potential in public, private sectors of the economy as well as diversification of the economy from oil remain critical to speedy recovery.
He added that with Nigeria’s dependence on crude oil export over 90 percent of its total foreign exchange earnings and over 70 percent of public revenue, the fall in crude oil prices makes the economy vulnerable to shocks.
Nwankwo, who stated this during a recent interaction with journalists in Abuja, stated that “Nigeria’s economy has been largely crude oil dependent. With oil prices still down, the impact on revenues and government’s ability to deliver on major developmental projects remain challenging. Still, government’s over-dependence on crude oil for national revenues was recognised for decades, but largely ignored.”
According to Nwankwo, both the private and public sectors have huge potential that should be harnessed to lift the economy from the pains of crashing crude oil prices.
He explained that the oil price crisis resulted from drastic, adverse structural shift in the global market demand and supply of oil and gas.
The International market price of oil dropped by about 43 percent from an average of about $100.35 for the 12 months of 2014, to an average of $57.20 for the first six months of last year and closed at $46 last Friday.
Crude oil prices declined to the lowest level in almost two months during Thursday trading amid several bearish reports, including the decline in US stockpiles, Brexit concerns, and potential supplies.
In addition, higher volumes of selling activities are also eroding stock and commodity prices. US crude dipped almost five per cent to $45.14 per barrel, the lowest settlement in almost two months. Brent crude futures declined nearly 4.8 percent to $46.43 per barrel after the rise of almost 1.5 percent during the early trading session last Thursday.
Nwankwo explained that for decades, developed economies have invested heavily on alternative energy sources and have been making steady and gradual gains in solar, organic and other renewable energy sources.
“Advances have also been made in energy-saving and efficiency devices. Besides, the oil price crash has hit the Federation Accounts Allocation Committee (FAAC) resources, the major source of revenue for all governments in the Federation, which dropped by 50 percent compared to the pre-crisis period and the drop in the annual amount available for sharing among the governments of the federation, estimated at $16 to $20 billion.
“The drop in FAAC revenues led to the inability of over 30 states, out of the 36, to honour recurrent obligations, including salaries and pension liabilities, as well as capital obligations. The DMO has helped to restructure the state debts, bringing temporary relief for the affected states,” he added.