The Managing Director of Financial Derivatives Company (FDC) Limited, Bismarck Rewane, has stated that the devaluation of the naira will take the country’s fuel subsidy bill to N7.1 billion daily.
BizWatch Nigeria recalls that the Central Bank of Nigeria (CBN) had announced in May that it was adopting the importer and exporter window (I&E) as the default reference exchange rate for official transactions.
Following the apex bank’s adoption policy which was designed to unify the country’s forex (FX) rates, the Naira shed 8 percent of its weight to the US dollar declining to N410.25/$1.
The CBN Governor dismissed suggestions about naira devaluation, noting that the country still operates a managed-float exchange regime.
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In an economic report released over the weekend, Rewane noted that considering the growing domestic demand for petrol, subsidy payment could increase.
Rewane pointed out that since the countries petrol consumption jumped from 57.8 million last year to 93 million litres – about 60.9 percent increase, the nation could be paying N7.1 billion daily from N5.5 billion in June.
The report argued that the main factor was due to the rally in global oil prices, at $76 per barrel and currency adjustment of between N410 and N411 at the investors and exporters window (I&E rate) from the previous N379/$, causing a surge in landing costs for imported refined products.
“Based on this new template, the expected price of premium motor spirit (PMS) will increase to N254.90/litre from N239/litre estimated in April.
“Meanwhile, the NNPC had said that the price of petrol would remain at N162-N165/litre in July,” Rewane stated.
Rewane noted Nigeria’s daily petrol consumption as of the first quarter of 2020 stood at an average of 57.8 million with N5.5 billion daily subsidy payment in June.
The financial analyst cautioned that the new subsidy regime target could degenerate further by the impact of smuggling and affect critical capital projects.
“This will lead to a further increase in petrol prices. Furthermore, higher energy costs coupled with rising food prices will continue to erode consumer disposable income,” Rewane added.
On Monday, the naira gained 0.12 percent to trade at N411.50 to a dollar at the I&E window and remained flat at N503 per dollar at the parallel market.
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