July 15, 2024
RUSSIA-UKRAINE WAR: How it will continue to impact Nigeria’s economy
– By Godswill Odiong

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By Eyo Nsima
The Russian-Ukraine war will continue to impact negatively on Nigeria’s economy, according to the Federal Government.

In its Medium Term Expenditure Framework & Fiscal Strategy report, obtained by The Daily, www.thedaily-ng.com, the Budget Office of the Federation, disclosed that the Russia – Ukraine war is central to key risk indicators over the medium term.

It stated: “Russia supplies around 19% of the world’s natural gas and 11% of global oil. The war has resulted in a surge in commodity prices, disrupting food and energy exports from both countries. This is one of the reasons why energy prices have jumped alarmingly, eclipsing the $100pbl for the first time in almost 4 years.
“Gas spot prices in Europe are now more than 10 times higher than a year ago while the cost of oil has nearly doubled over the same period. The price shock risks increasing poverty and disrupting the production of goods and services worldwide also increases business uncertainty. Food and energy security uncertainty are triggers for civil unrest, political and insecurity risks as consumers spending power fades and inflationary pressures increase.
“Overall, the outlook is clouded by a number of downside risks, with global recovery set to decelerate amid protracted supply bottlenecks, financial stress amid diminished fiscal support, global inflation and lingering global health concerns including new virus variants amid covid19 flare-ups in some countries. The base effect of the pandemic has left the world with a dynamic global economic environment with Nigeria as well as other African economies struggling to create new opportunities for its growing workforce.
“There is an expected reversal of this trend over the medium term with implementation of Government programmes and policies outlined in section 7 of this document. The FGN inclusive view/approach to growth is expected to close the inequality gap which was worsened by the pandemic.”

It also maintained that, “The Ukraine war sent oil price briefly above $139 a barrel in March 2022, the highest price point since 2008 and moderated at $113.94 and $117.72 in May and June 2022 respectively. This has worsened inflationary pressures domestically and globally. Average oil price forecast in the Medium Term is 2023: $70/bbl, 2024: $66/bbl, 2025: $62/bbl, and this is premised on a historical trend review as well as the averages of a number of forecasting institutions, factors affecting market fundamentals global economic recovery and plans by governments and market sentiments Price is expected to average at current levels in 2023, moderating slightly over the medium term.

“Overall, oil prices have shown great promise with forecast expected to trend above the price range projected over the medium term, as volatility risk persists. 2.2.2 Oil Demand & Supply Risks COVID lockdowns in China, where a Beijing outbreak has prompted the resumption of mass testing, have curbed oil demand. However, OPEC has stuck with its forecast for 2022.

“The global oil demand is expected to exceed pre-pandemic levels in 2022. Russian invasion of Ukraine however, poses a significant risk. On the supply side, OPEC has cut 2022 Russian output, but leaves US shale steady. With the US president hinting at using emergency powers to add oil refining capacity as part of measures to help ease high fuel prices. Downside risks to supply are however high.

“Insecurity and risks persists domestically as well as in Iraq, Libya, Iran and UAE. 9.3 Exchange Rate Risks The main objectives of exchange rate policy in Nigeria are to preserve the value of the domestic currency, maintain a favourable external reserves position and ensure external balance without compromising the need for internal balance and the overall goal of macroeconomic stability.”

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