Crude Price Instability Threatens Nigeria’s N36.35trn Revenue Projection

Nigeria’s economy faces significant challenges as crude oil prices remain volatile, jeopardising the federal government’s ambitious revenue target of N36.35 trillion for 2025.

A report has warned of a possible negative impact of unstable global oil prices and its implications for the federal government’s revenue forecast for 2025.

According to the report, the risk in the global oil market and geopolitical tensions may continue to leave Nigeria exposed to shocks.

The report by PricewaterhouseCoopers International Ltd, a global business advisory firm, said Nigeria would need to raise crude output by 37 per cent to achieve the revenue goal.

The PwC report, entitled “2025 Nigeria Budget and Economic Outlook,” said that if the oil production figure were met, Nigeria’s trade surplus would be sustained. However, it warned that this ambition was subject to fluctuations in global oil prices since crude remains Nigeria’s largest export.

Nigeria achieved its Organisation of Petroleum Exporting Countries (OPEC) quota in December last year, reaching 1.5 million barrels per day, excluding condensate of about 200,000 bpd.

The federal government hopes to achieve 2.06 million bpd of oil production and a price of $75 per barrel this year.

“The global average oil price in 2024 was $78.05 per barrel. The high prices depend on increased China demand, OPEC supply restrictions, US shaling, etc. Target requires a 37 per cent increase in 2024 average production of 1.5 Mbps achievable through improvements in security, investment, and regulatory frameworks (and) investments by Shell and TotalEnergies in the Bonga deepwater field and the Ubeta upstream,” PwC said.

To meet the N1500/$ exchange rate projected by the government, the analysis showed that for a positive balance of payments, Nigeria requires a significant increase in diaspora remittances and an increase in foreign portfolio investment.

“Government revenue is expected to grow in 2025 on the back of government reforms; however, achieving the ambitious target of N36.35 trillion will require significant effort,” the report added.

PwC noted that the outcome of the implemented fiscal reforms, exchange rate fluctuations, oil production levels, and global oil prices would drive Federation Account Allocation Committee (FAAC) allocation in 2025.

With Nigeria’s trade surplus growing by 511 per cent, reaching N6.95 trillion in Q2 2024, up from N133.2 billion in Q2 2023, and driven by a 190.9 per cent increase in crude oil exports to N14.6 trillion, PwC said this trend would likely be sustained this year.

“The trade surplus is expected to continue in 2025, supported by higher crude oil production and prices. However, the trade balance remains susceptible to fluctuations in global oil prices, as crude oil exports account for the largest share of Nigeria’s total exports,” it said.

In H1, 2024, oil exports rose to N34.87 trillion, the report said, significantly outpacing non-oil exports by nearly 14 times, while oil exports grew significantly by 97 per cent from N17.81 trillion in H1, 2023, compared to non-oil exports which rose by only 37.3 per cent, highlighting Nigeria’s heavy reliance on crude export.

“With a cheaper naira under the floating exchange rate, 2025 presents a critical opportunity to diversify export earnings by boosting non-oil exports. Investments in value-added production, export incentives, and improved logistics could help reduce dependency on oil and mitigate external vulnerabilities.

“Revenue generation has significantly improved, driven by higher tax revenues and enhanced oil production. As of August 2024, 73.8 per cent of the pro rata budget had been achieved. Sustained growth is anticipated in 2025. However, the revenue target of N36.35 trillion is unlikely to be met due to oil revenue constraints and a low tax base. Crucially, effective tax reforms may help achieve the non-oil revenue targets,” the PwC report said.

It also raised questions about Nigeria’s debt-to-Gross Domestic Product (GDP) of 50.7 per cent recorded in October 2024, which remains above the 40 per cent debt-to-GDP threshold.

“The proposed fiscal deficit of N13.8 trillion (3.87 per cent of GDP) in 2025 exceeds the 3 per cent limit set by the 2007 Fiscal Responsibility Act. Rising bilateral and multilateral debt in Nigeria indicates potential future financial pressure if not matched by economic growth and revenue generation, highlighting significant debt sustainability issues,” it said.