Oil Output: Exemptions For Nigeria, Libya May Defeat Purpose, IMF Warns

Amidst plans by the Organisation of Petroleum Exporting Countries (OPEC) to further extend output when its meet on May 25, in Vienna, Austria, as part of keeping the price up, the International Monetary Fund (IMF) says the exemption granted Nigeria and Libya may defeat the cartel’s plan of reining in on output to control price of the commodity at the international markets.
In a statement on Tuesday, urging sub-Saharan African countries to implement strong and urgent policy actions to boost growth in the region, the IMF warned that the exemption granted both African nations because of internal conflicts that have shut in so much of their output capacity, may become its albatross after all.
The statement by IMF’s Communications Department recalled Libya’s oil chief, Mustafa Sanallah, as telling Petroleum Economist in late April that output would rise by around 0.5m b/d to one million barrels per day by August.
This proposed increase in output, added to what is expected to enter the market, should Nigeria’s Federal Government sustain the calm in its troubled oil-rich Delta region, where saboteurs struck facilities repeatedly last year, could add another 0.5mb/d to output.
The problem, the statement continued, is worsened by the United States, identified as the biggest threat to OPEC’s effort, with the number of rigs drilling for oil therein rising by over 60% since last September.
“The elasticity of American supply—helped by Wall Street’s willingness to fund growth and producers’ alacrity in hedging when oil prices bounce higher—has surprised Opec. And if the trend continues, it may force the group to rethink its strategy.
“As much as Saudi Arabia wants a higher oil price, it does not want to repeat the 1980s experience of repeatedly cutting supply to prop up the market—only to subsidise the growth of other producers. So while this month’s Opec meeting seems certain to bring an extension, enthusiasm for the strategy will eventually wane if further cuts only serve to buoy rivals,” IMF added.
The statement however urged countries in Sub-Saharan Africa to urgently put in place strong and sound policy measures that would enable them kick-start the continent’s growth, quoting its latest Regional Economic Outlook, Restarting the Growth Engine, as saying growth fell to 1.4% in 2016—its lowest level in two decades.
Growth is projected to record a modest recovery of 2.6% in 2017, although a number of countries, especially in Eastern and Western Africa, continue to grow robustly.
The statement quoted Abebe Aemro Selassie, Director of the IMF’s African Department, as saying: “The overall weak outlook partly reflects insufficient policy adjustment. The delay in implementing much-needed adjustment policies is creating uncertainty, holding back investment, and risks generating even deeper difficulties in the future. Adjustment in resource-intensive countries has been delayed.
“In particular, oil exporters such as Angola, Nigeria, and the countries of the Central African Economic and Monetary Union (CEMAC) are still struggling to deal with the budgetary revenue losses and balance of payments pressures, some three years after the fall in oil prices
“Vulnerabilities are also emerging in many non-resource-intensive countries. While they have generally continued to record high growth rates, they have also maintained elevated fiscal deficits for a number of years as their governments rightly sought to address social and infrastructure gaps. As a result, fiscal and external buffers are declining and public debt is on the rise.”
A modest growth recovery from 1.4% in 2016 to 2.6% in 2017, Selassie points out, would barely put the region back on a path of rising per capita income, while the uptick will largely be driven by one-off factors in the three largest countries—a recovery in oil production in Nigeria, higher public spending in Angola, and fading of drought effects in South Africa.
But for other countries, the outlook remains shrouded in substantial uncertainties, including a possible further appreciation of the U.S. dollar, a tightening of global financing conditions – especially for countries where fundamentals have deteriorated. On top of that, he notes that the outlook is further clouded by security issues that have contributed to an increase in food insecurity and even famine in parts of sub-Saharan Africa.
Selassie stressed that “strong and urgent policy action is needed to restart growth where it has faltered and preserve the momentum elsewhere.”
While restoring macroeconomic stability is a prerequisite, it needs to be complemented with structural reforms to support the rebalancing and policies to strengthen social protection for the most vulnerable, he added.
For the hardest-hit countries, he noted that strong fiscal consolidation is required, with an emphasis on revenue mobilization. In addition, where available, greater exchange rate flexibility, while elimination of exchange restrictions will be important to absorb part of the shock.
For countries where growth is still strong, he emphasized the need to address emerging vulnerabilities from a position of strength, including by shifting the fiscal stance toward gradual consolidation
Selassie further reiterated that sub-Saharan Africa remains a region with tremendous potential for growth in the medium term – provided strong domestic policy measures are implemented.

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