Lagos, Nigeria — Nigeria’s budget projections for 2025 could face significant shortfalls, driven by the country’s ongoing struggles with oil production, as well as the uncertain global oil market. President Bola Tinubu’s administration has proposed a N47.9 trillion ($62 billion) budget, with oil revenues expected to make up the majority of the income. However, with Nigeria’s oil output falling far below targeted levels, meeting these revenue goals remains a major challenge.
The proposed 2025 budget anticipates oil contributing 56% of the total revenue, or N19.6 trillion, with the government targeting 2.06 million barrels per day (bpd) of production at a price of $75 per barrel. Non-oil revenues are expected to provide the remaining 43%. However, recent developments in both the domestic and international oil markets suggest that the government’s reliance on oil revenue could be problematic.
Global Oil Price Volatility Adds Uncertainty
Internationally, oil prices face heightened uncertainty, with some analysts forecasting a sharp decline in 2025. Citibank predicts that Brent crude could average as low as $60 per barrel next year, significantly below current levels, while some experts are even projecting a drop to $40 per barrel if the market becomes oversupplied due to OPEC+ production cuts unwinding.
This outlook is compounded by geopolitical factors, including U.S. President-elect Donald Trump’s energy policies, which could influence global supply and demand. Trump has expressed intentions to boost U.S. energy production, potentially driving down global prices. Analysts at Goldman Sachs also warn of medium-term risks to oil demand, particularly if global trade tensions escalate under the new administration.
Domestic Oil Production Continues to Underperform
In addition to global market concerns, Nigeria is grappling with persistent underperformance in its oil production. Despite ambitious targets set in previous years, the country has consistently failed to meet its crude output goals. In 2023, Nigeria’s oil production was just 1.39 million bpd, well below the projected target of 1.69 million bpd. The country’s oil sector has been plagued by infrastructure challenges, theft, and technical issues, further complicating efforts to increase production.
The Nigerian National Petroleum Corporation (NNPC) has announced recent improvements, with output rising to 1.8 million bpd as of November 2024. However, this level still falls short of the government’s target of 2 million bpd by year-end and remains below the capacity of 2.2 million bpd that Nigeria has historically claimed.
While NNPC’s Group CEO Mele Kyari attributes this recovery to improved security measures and collaborative efforts with joint venture partners, industry observers remain cautious about the sustainability of these gains. Reports from industry sources suggest that actual production levels may still be lower than official government figures, with some estimates putting October’s output closer to 1.32 million bpd.
Impact on Nigeria’s Economic Outlook
The risk of low oil revenues is particularly concerning for Nigeria, given the significant share of the economy dependent on oil exports for government income and foreign exchange. A prolonged dip in oil prices or production could force the government to scale back spending, including on infrastructure, healthcare, and education.
Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies, warned that “reduced oil revenue could lead to a chain reaction impacting not only the government’s budget but also industries and households reliant on oil-sector jobs.” She added that this could exacerbate inflationary pressures and stymie broader economic growth.
As of August 2024, Nigeria’s oil and gas revenues were significantly below target, with the Federation Account receiving N8.5 trillion, a 25.3% shortfall from the planned N11.3 trillion. This trend is raising concerns about the government’s ability to meet its financial obligations, particularly as recurrent expenditure and debt service obligations continue to rise.
Potential Repercussions for Public Spending
The government’s heavy reliance on oil revenue means that any sustained drop in prices or production could necessitate austerity measures or delays in key infrastructure projects. Public spending could be curtailed in critical sectors, with potentially far-reaching implications for Nigeria’s long-term economic development.
While some analysts point to the diversification efforts underway in Nigeria’s economy, including efforts to boost non-oil revenues, the fact remains that oil remains central to the nation’s fiscal health. Unless oil production improves or other revenue sources are able to offset any shortfall, Nigeria may face tough decisions in the coming months.
With oil playing a central role in Nigeria’s revenue model, the country’s fiscal outlook for 2025 is closely tied to the performance of its oil sector. Low production and volatile global prices pose substantial risks to the government’s ambitious budget, with potentially serious implications for the economy. Policymakers will need to navigate these challenges carefully, balancing spending priorities with the realities of a fluctuating global energy market.