24.9 C
Lagos
Tuesday, November 12, 2024

spot_img

Nigeria’s $35bn budget at risk as oil sector woes hit revenue

President Bola Tinubu’s ambitious N28.7trn ($35bn) budget is under threat just five months after its approval, as Nigeria’s oil and gas sector grapples with persistent underinvestment, theft and production outages.

Africa’s biggest oil producer, Nigeria, has continued to contend with underinvestment and production outages caused largely by theft and pipeline vandalism, which have seen it lose its top spot several times in recent years.

The growth of the oil sector, the lifeblood of the country’s economy, plunged to 6.41% in the first quarter of this year from 12.11% in the previous quarter, according to data released by the National Bureau of Statistics last month.

Some international oil companies are selling their assets that have been hardest hit by the challenges. Shell announced on 16 January that it had agreed to sell its Nigerian onshore subsidiary, Shell Petroleum Company Development of Nigeria, to Renaissance, a consortium of five companies.

‘State of emergency’

“I expected the president to declare a state of emergency in the oil and gas sectors – boost production and exports and find a way to resolve the issues we have with gas,” Bongo Adi, a professor of economics at the Lagos Business School, tells The Africa Report.

Crude oil and condensate production in Nigeria fell to 1.44 million barrels per day (bpd) in April, down from 1.64 million bpd in January, according to the latest data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

The federal government’s retained revenue for January and February 2024 was approximately 60% of the budget, largely due to lower crude oil production volumes, according to the Economic Management Team Emergency Taskforce chaired by the finance minister.

 “Our ability to achieve the 2024 budgeted revenue increase of 77.4% from 2023 [actual] is at risk should oil production remain 27.0% below budget,” it said. “If shortfalls persist, the revenue for 2024 is unlikely to exceed N15.8trn, compared to a target of N19.68trn,” the taskforce added.

Africa Insights

Wake up to the essential with the Editor’s picks.

Sign up

Also receive offers from The Africa Report

The document noted that the current oil production of 1.4 million bpd, compared to the budget target of 1.78 million bpd, was constraining the country’s fiscal position.

The recent extension of production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies means Nigeria will not be able to pump more than 1.5 million bpd this year.

Petrol subsidy looms large

A significant threat to the budget is what the International Monetary Fund (IMF) has termed the “implicit fuel subsidy,” which could soar more than fourfold to N8.43trn in 2024, nearly half of the projected oil revenue of N17.69trn.

The IMF said that capping pump prices below cost had effectively reintroduced implicit subsidies by the end of last year to help Nigerians manage high inflation and exchange rate depreciation.

The government must reduce waste and tighten its belt

The taskforce document rekindled the debate over the potential re-emergence of the petrol subsidy that was supposedly abolished a year ago.

“Expenditure on fuel subsidies is projected to reach N5.4trn by the end of 2024. This compares unfavourably with N3.6trn in 2023 and N2trn in 2022,” it said.

READ MORE Amex in Nigeria: Non-bank credit card issuer eyes $21bn remittance market

However, the presidency says that the fuel subsidy regime has ended. For almost a year now, the state-owned Nigerian National Petroleum Company (NNPC), still the sole importer of petrol in Nigeria, has been selling fuel for N568 per litre in Lagos. The price of diesel continues to fluctuate, now costing around N1,200.

Industry analysts and economists say that the wide gap between diesel and petrol prices indicates that the NNPC is subsidising petrol.

“The government has projected revenue from the NNPC, specifically from oil sales. The more spent on the petrol subsidy, the less is available for government revenue, thus affecting the budget,” said Adeola Adenikinju, president of the Nigerian Economic Society.

Higher budget deficit raises concerns

The IMF has projected that lower oil and gas revenue, coupled with higher implicit fuel and electricity subsidies, will result in a fiscal deficit surpassing the N9.18trn anticipated in the 2024 budget.

Adenikinju cautioned that a higher deficit necessitates increased borrowing, with implications for inflation and exchange rates.

“That increase in public debt will be serviced by higher interest rates that have risen significantly, and we have seen substantial domestic borrowing. The fiscal situation will be very challenging. The government must reduce waste and tighten its belt,” he said.

Increasing revenue without addressing leakages is pointless

The country’s public debt stood at N97.34trn at the end of 2023, up from N46.25trn the previous year, according to data from the debt office.

Adenikinju said the government should explore more public-private partnerships for capital projects and provide incentives for private investors.

“Government expenditure is rising at an alarming rate, with most of it being recurrent. Cutting down on wastage will increase revenue. However, increasing revenue without addressing leakages is pointless,” said Akpan Ekpo, a professor of economics and public policy.The former director-general of the West Africa Institute for Financial and Economic Management emphasised the need for domestic crude oil refining to reduce foreign exchange expenditure on imports.

“When the petroleum sector underperforms, it affects every other aspect of the economy. The NNPC must be accountable and transparent,” he said.

President Bola Tinubu told the National Assembly in May that he would soon submit a supplementary budget. The IMF said the government agreed a supplementary budget would be necessary to accommodate the outcome of ongoing wage structure negotiations, which could exceed the provisions included in the 2024 budget.

Source: Africa Report

Related Articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Stay Connected

0FansLike
0FollowersFollow
0SubscribersSubscribe
- Advertisement -spot_img

Latest Articles