Nigeria Faces Revenue Risks over Weak Oil Production –Analysts
Nigeria’s fiscal slippage is expected to widen in the current amidst rising pressures on production volume. Over the years, government revenue has been driven by foreign receipts from oil export in addition to a moderate contribution from the non-oil segment.
For Africa’s most populous nation, there is a strong connection between oil market performance and gross domestic product growth. Years of overdependence on oil export receipts impacted on government’s ability to drive the fourth industrial revolution. Across key sectors, the country has no comparative advantage.
Though global crude oil prices have remained relatively high; Nigeria has consistently failed to meet the Organisation of Petroleum Exporting Countries and allies (OPEC+) 1.8 million barrels of oil per day (mbpd) quota.
MarketForces Africa reported that Nigeria’s retained revenue dipped below expectation in the first four months of the fiscal year 2022. Since then, average oil production has been hovering below 1.3 million barrels per day.
As low crude oil volume persists, Nigeria’s debt profile has increased as the government shored up borrowings amidst rising budget deficits. In 2022, fiscal revenue is unlikely to get better, analysts told MarketForces Africa.
Nigeria’s fiscal deficit is projected to spike to 5.5% of GDP from 4% in 2021 on sustained subsidies payments which the finance ministry has also projected to rise to N6.7 trillion in 2023.
Recall that the finance minister told parliament in its 2023-25 medium-term expenditure framework (MTEF), assuming a business-as-usual petrol subsidy, that Nigeria will spend N6.72 trillion on subsidies.
Though, the ministry assumes that if the petrol subsidy ends in June 2023, in line with the 18-month extension approved in January 2021, Nigeria will spend N3.36 trillion. In a recent report, OPEC revealed in its oil market report for September that Angola and Libya have overtaken Nigeria as Africa’s highest crude oil producer.
According to the report, Nigeria’s crude oil production for the month of August averaged 1.100 million barrels per day. The report said the figure showed a decrease of 65,000mmpd when compared to the 1.164mbpd produced averagely in the month of August.
However, the report said Angola was Africa’s highest crude oil producer for the month under review with an average production of 1.187mbpd. It said Libya’s crude oil production averaged also 1.123mbpd for the month of August.
Citing secondary sources, the report stated that total OPEC-13 crude oil production averaged 29.65 mbpd in August, higher by 618,000 month-on-month. It noted that crude oil output increased mainly in Libya and Saudi Arabia, while production in Nigeria declined.
The report said Nigeria’s real Gross Domestic Product expanded by 3.5 per cent year-on-year in 2022, following growth of 3.1 per cent in the first quarter of 2022. It noted that the expansion was mainly driven by the non-oil sector, which grew by 4.8 per cent year on year.
On a quarterly basis, the GDP shrank by 0.37 per cent following a 14.66 per cent contraction in the previous quarter. Nevertheless, the annual inflation rate surged to the highest since September 2005, climbing to 19.6 per cent year on year in July from 18.6 per cent in June.
This was a result of the weakening naira due to continued high imported input costs as well as soaring fuel prices. Moreover, food inflation increased to 22 per cent year on year, the highest since May 2021,” the report said. READ: Nigeria Requires Reforms to Halt Fiscal Slippage – Analysts
“Nigeria faces risks of fiscal slippage and this time it could be worse because of the size of the budget and marginal contribution from the non-oil sector. Despite that Nigeria has ways and means option for getting funds from Central Bank, FX receipt from oil would have help in delivering growth”, analysts told MarketForces Africa at a forum on Wednesday.
#Nigeria Faces Revenue Risks over Weak Oil Production –Analysts