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Oil price decline threatens foreign exchange earnings

The declining oil price may threaten the nation’s foreign exchange earnings and put Nigeria in a state of bankruptcy, says Mr. Opeyemi Agbaje, Managing Director/CEO, Resources and Trust Company Limited.

Agbaje, a financial expert who delivered a lecture at the ongoing GtBank’s Annual Course for Journalists in an interview with Vanguard on the impact of rising debt profile on the nation’s economy said that a fall in petroleum price may spell doom for the country.

“Given the level of income that we have, right now, the current fear I have is that Nigeria is tinkering with position to cope with an oil price collapse. If oil price collapses, we will be in trouble both in terms our exchange rate, capacity to finance our imports, the required level of our imports and in terms of our current account balance”

He stated that allowing local and foreign debts to skyrocket may translate to have a repeat of the experience Nigeria passed in 1980, when the country’s economy collapsed due to decline in oil price.

According to him “ if we allow debt to skyrocket, by the time we have to correct the trend, we might go back to the 80,s scenario in which we have an oil price collapse and we were technically bankrupt as a country. So it is an issue we have to be careful as a country”.

He wondered why Nigeria’s debt portfolio would continually be on the increase despite the robust external reserves that the nation just had. “But then, how could Nigeria be increasing its debt profile? We entered the global financial crises with $63 billion in reserve, $20 billion in excess crude sales, what did we do with that money? Did you see the evidence in domestic economy of those resources that have been filtered at a time of high oil prices?

Continuing he said “historically, oil at $80 or $70 per barrel is a very high price. Yet in that same billion, we not only depleted the excess crude from $20 billion, it is today left with nothing. The reserve has been depleted to $33 billion and at the same time, we have spent all the income and now we are borrowing money. So for me it is worrying and we really have to control the rate of increase in both domestic and foreign borrowing”.

However, he maintained that internal borrowing helps to build the economy, but emphasized that such borrowing should be deployed to the purposed that they were meant for and should be seen to be productive in nature.

“Debt itself is not a bad thing, but for me, personally indicators in Nigeria are that most of our debts are misplaced, why? They have corruptly filtered them away. Yes, there is nothing wrong with debts, provided it is generating, provided it is productive, provided it is well managed, provided the purpose for the debt was justified.

Who was the biggest domestic debtor in Nigerian banking sector? Aliko Dangote. But was that a bad thing? No! Because he invested in productive capacity and today he is probably the largest domestic investor in Nigeria, so debt in itself is not a bad thing.”

Commenting on different forms of debts that impacts negatively in the country’s debts profile, he declared that debts are in categories for instance, the credit bills issue that deals with the government, which spans for maybe a period of about 90 days or less than one year.

But the area in which the domestic debt is growing rapidly is the bonds that are being issued.

Continuing he said “The federal government has been issuing bonds in fairly large numbers, both the CBN and the debt management office. So for the bonds there are two source, both the CBN and the federal government.

Then the state bond are also rising, the state government bonds as you know that many states have been issuing bonds.


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