By Babajide Komolafe

The decline in crude oil prices and the accompany fall in government revenue may lead to  severe policy adjustment,  including  devaluation of the Naira, removal of fuel subsidy and deferment of capital expenditure projects, to the decline in crude oil prices, said Bismark Rewane, Managing Partner, Financial Derivatives Company Limited .

In his monthly economic news and views presentated last week at Lagos Business School Executive Breakfast Meeting, Rewane noted that the decline in crude oil prices since the beginning of the year persisted in June, with another five per cent decrease.

He noted that the price of the nation’s Bonny light has declined by 29 per cent or $35 from its peak of $130 per barrel. This he noted has dented revenue from oil and foreign exchange inflow into the country. He said for example, oil revenue fell by 7.1 per cent to $4.7 billion in April while net inflow of foreign exchange also dropped sharply to $1.49 billion.

This he said is compounded by appreciation of the dollar against other currencies in the international market.

He these two factors have resulted into a gradual slide in Nigeria’s terms of trade  from $113.6 billion to $105 billion in 2012   and also a reduction of Nigeria’s share of world exports from 0.63per cent to 0.58 per cent.

He said  that Nigeria’s  economy is highly vulnerable to oil price shocks such that $1 decline in oil price will lead to   0.8 per cent in revenue, 0.1 per cent reduction in external reserves, and 0.8 per cent depreciation of the naira. He said should the decline in crude oil prices persist, the government would have to make significant monetary and fiscal adjustment to cope with the conc ant decline in revenue.

He said, “ When oil prices fall below $100pb, there would be monetary policy adjustment namely,  Limited interest rate increases,  A depreciation in the official rate of exchange from N156 towards N160/$1 while  Interbank foreign exchange rate and street rates  will fall to N165 -170 per dollar

“If oil prices fall below $90pb, fiscal adjustment will kick in among which are: Deferring some capital expenditure items; Trimming the recurrent expenditure and cutting waste;  Removal of subsidy;  Increase in excise taxes and some import duties. “ If oil prices fall below $80pb, expect structural adjustments which will include; Increased borrowing (external and internal);  Tinkering with exchange control regulations; And  Currency devaluation”