Petrol hike shows govt still suffers revenue deficit – Uwaleke


.Says Nigeria stock market may end 2020 in red

The hike in Petroleum Pump price shows that federal government still suffers huge revenue deficit, an economist, Uche Uwaleke has said.

This is even as the Professor of Finance and Capital Market, says the Nigerian Stock Exchange (federal government) will likely close 2020 in red, based on negative real GDP growth rate projections.

According to him, “The PMS pump price band of N140.80 to N143.80 advised by the PPPRA for the month of July from N123.50 in June, in my view, reflects government’s desire to gradually exit the flawed and corruption-riden fuel subsidy regime. 

“This is particularly so in view of plummeting government revenue and the pressure on government finances occasioned by COVID’19. 

“Fortunately for the Nigerian economy which is substantially powered by the oil sector, the OPEC+ production-cut agreement is yielding positive result, helping oil price recovery,”

However, Uwaleke said that it translates to higher cost of petroleum products imports, adding that “Untill we capability to refine enough crude oil for domestic consumption, the pump price of PMS will continue to be exogenously determined. This is the sad reality,”

Speaking further, he stated that now that the government has lifted the ban on inter-state travel as part of measures to restart the economy, the country cannot afford any round of fuel scarcity and the attendant costs to the economy.

He stated that in due course especially post COVID’19, government must fully deregulate the downstream sector, paving way for private investments and generating a competitive environment that will drive down petroleum products prices ultimately. 

Expressing his view on the backdrop of negative real GDP growth rate projections by the International Monetary Fund (IMF) and the World Bank occasioned by COVID-19, he said, “The NSE All-Share Index is most likely to close the year in the red against the backdrop of negative real GDP growth rate projections by the IMF and the World Bank.

“Despite this, I expect to see some bright spots, especially in sectors not severely affected by COVID-19,” Uwaleke said.

He said telecommunication stocks would likely outperform the market because of people’s adaptation in the wake of coronavirus.

Uwaleke said that pharmaceutical stocks and insurance companies’ stocks would offer investors increased returns on their investments.

He cited pharmaceutical stocks such as Niemeth, currently benefitting from government stimulus packages, adding that insurance companies’ stocks are also usually sought after during periods of uncertainty, as insurance uptake rises for many.

“Industrial stocks such as Dangote Cement may not disappoint, especially if the government faithfully implements the Economic Sustainability Plan with a lot of stimulus funds to the housing and construction sectors,” Uwaleke said.

According to him, the global response to the negative impact of COVID-19 and how soon the world economy gets started will have an effect on the performance of the market.

“A lot will depend on the global response to the negative impact of COVID-19 and how soon the world economy gets restarted since foreign investors constitute a significant part of activities in the stock market.

“Market performance will also depend on the level of both local and foreign investors’ confidence in the economy reflecting the vagaries in the international crude oil market, given that the economy of Nigeria is substantially powered by the oil sector,” he said.

Uwaleke said domestic borrowing by the Federal Government would influence stock market performance generally in the second half of the year.

“Another factor that will influence stock market performance in H2 2020 will be the federal government domestic borrowing with the tendency of portfolio rebalancing in favour of FGN bonds being a safer asset class.

“By and large, the performance will be mixed, but more on the bearish side.

“Expectedly, any stock market appreciation will witness a decline almost on the toe as investors quickly take profit,” he said.

About the author

Our Correspondent

Leave a Comment