Tuesday, January 09,
2018 5:59PM /Proshare Research
On Tuesday 9th of January 2018, oil
prices touched $68/barrel, sustaining its earlier upward trajectory.
Establishing a 32% increase on a year-on-year basis, thus it provides us an
opportunity to weigh in the possible effect of a $68/ barrel on the
economy.
Budget
Presently, the price of crude has risen by 51.1%
compared to the budget benchmark of $45/barrel. The dynamic will bolster
government revenue accretion, especially foreign revenue.
It is expected that buffering in oil receipt will
also temper down existing risk aversion borne by government on future external
funding.
This present scenario provides space for the
fiscal side, in-terms of revenue mobilization and reduction in the cost of
external debt.
Debt
Certainly, the rise in oil price will reduce risk
aversion especially with regards to sourcing external funds. The interest rate
charge on government instrument will dip reducing pressure on recurrent
expenditure.
Moreover, the increase in oil price further
support government debt reshuffling with regards to foreign debt to domestic
debt ratio.
The pressure for bridge funds, persistent
stretching of the money market and decelerate the quantum of debts will reduce.
On fuel/Diesels
The increase in oil price will seep
into the cost of production, creating a bandwagon effect on the price of the
product. Moreover, the lack of domestic production, further inflame the
cost.
On consumer prices/ confidence
It is expected that the recent dynamic will force a
trickle-down effect on both energy and transportation cost. Such will
have a negative impact on the active income of consumers due to rising cost of
transactionary demand.
Regardless, the market is not fully
de-regularized, government position and policy on the short run will largely
determine consumer confidence
Reserves
The rise in oil price has a direct relationship
with reserves at such having a positive effect on reserve, due to improve oil
receipt. The effect is not farfetched as reserves have
already hit $40 billion, with oil at $65 such uptrend in reserves will be
sustained.
Economy
The effect on the economy is multifaceted