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Budget 2024 faces funding crisis over mounting debt, subsidy, oil revenue hiccups



Budget 2024 faces funding crisis over mounting debt, subsidy, oil revenue hiccups

Mounting debt obligations, return of fuel subsidy and continuing drop in Nigeria’s crude oil production are signaling an imminent and potential danger of drastic revenue shortfall that may scuttle the smooth implementation of the 2024 budget.

The unexpected return of fuel subsidy, which came into focus recently, when former Kaduna state governor, Mallam Nasir el Rufai, alleged that fuel subsidy is back and has already gulped over a trillion naira in the first quarter of 2024.

Informed estimate shows that at this level of subsidy, government will spent N4 trillion in 2024, which would further worsen its revenue challenge.Again, government is planning to implement a new minimum wage, which is being put at between N50000-65000 per month, an expenditure that was not included in the budget, and will require a supplementary budget to be funded through borrowing. Already, government debt has reach N87 trillion or $113 billion, and this has significant effect on revenue, as debt service obligations, which is a first line charge, continues to mount. The foreign reserves took a hit recently falling from $35 billion to $32.5 billion, when the CBN, according to the governor, Yemi Cardoso, raided it to meet statutory debt service obligations, such as the $7 billion backlog of un-repatriated funds of companies and ticket fees owed foreign airlines. All these issues are happening at a time the projected oil revenue is facing uncertainties due to instability in Nigeria’s crude production output.

Federal Government had set a benchmark production target of 1.78 million barrels of oil daily to achieve revenue projections. It also projected the benchmark price of crude oil in the budget at $77.96.

Crude oil proceeds form a major percentage of revenue allocations to the Federation Account. Brent crude, selling at about $92.09 per barrel, could have given Nigeria more money for its foreign exchange reserves were the nation meeting its daily production target.

The sharp drop in oil production has persisted over time with experts blaming factors, such as pipeline vandalism and crude oil theft, despite the Nigerian National Petroleum Company’s engagement of the private security outfits, Tantita Security Services, to protect the country’s oil assets.

At 1.23 million barrels per day (bpd), according to data from the OPEC’s monthly oil market report, the country’s crude oil production in March was the lowest this year, falling far below the benchmark of 1.78 million barrels daily set in the 2024 budget. The figure shows a 92,000 barrel drop from the 1.32 million daily production in February 2024.

The Organisation of Petroleum Export Countries (OPEC) had in its January report revealed that Nigeria averaged around 1.427 million barrels of crude oil daily- also below the 2024 budget target..

According to the report, Nigeria’s crude oil production for January saw an increase of 91,000 barrels when compared to the 1.33 million barrels daily production recorded in December.

However, based on secondary data obtained by the cartel, Nigeria’s average daily crude oil production stood at 1.419 million barrels daily- a drop of around 3000 barrels compared to the 1.422 million barrels recorded in the previous month of December.

This is happening at a time Nigeria’s oil industry is facing fresh challenges of unsold crude oil cargoes accumulating offshore. The country has yet to clear more than half of its scheduled crude oil cargoes for May as unsold crude oil starts to build up in the oil market.

According to a report by Bloomberg, traders, who specialize in West African crude, report that over 30 of the 83 Nigeria’s cargoes are still on the market, searching for buyers. The report further indicates that at least 53 cargoes are scheduled for loading out of Nigeria in the coming month. It noted that the majority of the shipments scheduled are substantial, with each consisting of one million barrels of crude oil.

A number of factors are conspiring against the sales of Nigeria’s crude oil. According to Bloomberg, the nation’s crude oil sales on the global market are slowing due to the demand mechanism, competition from other producers, and premium pricing for supplies available immediately.

For instance, market analysts report that heavy refinery maintenance in Europe has curtailed demand for Nigerian oil, causing an accumulation of surplus barrels from April into the May trading cycle.

In addition, industry insiders noted that competitive oil producers in the Mediterranean have been reducing Nigeria’s market share. Sales from Africa’s largest economy are also struggling due to higher freight costs and premium prices for immediate supplies.

With the latest OPEC figures, Nigeria was displaced as the biggest oil producer in Africa as Libya produced a higher figure of 1.236 million bpd – a 5,000 barrel difference, which makes it the largest oil producer in Africa for March 2024.


According to the report, Saudi Arabia maintained its position as the biggest oil producer among OPEC member countries, with an average daily production of 8.97 million bpd- a drop of 39,000 barrels. Iraq followed the Kingdom with 3.9 million bpd and the United Arab Emirates with 2.91 million barrels daily.

The drop in crude oil production means lower receipts from oil sales and reduced foreign exchange for the Federal Government. Current figures from the CBN, as of April 15, 2024, revealed that Nigeria’s foreign exchange (FX) reserves are now at $32.29 billion, a decline from $34.45 billion recorded on March 18, 2024.

The reserves have exhibited a consistent downward trajectory, shedding approximately $2.16 billion from a high of $34.45 billion logged on March 18, 2024, to a significant low of $32.29 billion by April 15, 2024.

Recently, media reports claimed that the Central Bank of Nigeria (CBN) may be using Nigeria’s foreign reserves to support the naira despite earlier promises to allow the currency to float.

However, addressing the concerns on Wednesday at the Spring meetings of the International Monetary Fund (IMF) and World Bank in Washington, CBN governor, Mr Olayemi Cardoso explained that the movement of the reserves has nothing to do with the recent gains recorded by the Nigerian unit in the forex market, noting that the apex bank had no intention of defending the naira.

“It is not our intention to defend the naira,” he said. “The shifts you’ve seen in our reserves has really little or nothing to do with defending any naira and that’s certainly not our objective.”

Cardoso’s position further lends credence to the views of analysts, who see a strong link between the nation’s falling oil production and depleting foreign reserves.

“With less oil flowing, the government faces tough choices: slash spending, hike taxes, or borrow heavily,” Adeola Adenikinju, a professor of energy economics and president of the Nigerian Economic Society, said.

“Each option carries its own set of risks, potentially impacting growth, fueling inflation, and straining an already burdened population,” Adenikinju added.

Jim Orife, former General Manager of Nigerian National Petroleum Company (NNPC) Ltd, said there was little or no strategy for implementing any energy plan policymakers had drawn up in the last 10 years.

“We have remained in the same spot if you ask me. We are not unlocking anything,” Orife, a foundation staff member of NNPC in 1977, said at the recent National Association of Petroleum Explorationists conference.

According to Austin Avuru, executive chairman of AA Holdings, Nigeria’s oil industry faces a stark reality check, as it needs 45 new rigs to reach “normal” production levels of 2.1 million barrels per day (bpd).

“To arrest the natural decline and add 800,000 barrels per day over two years will require 426 wells, including 106 exploration and appraisal wells as well as 320 development wells,” Africa Oil & Gas Report, an energy intelligence publication, quoted Avuru as saying.

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