Crude oil price continued its downward trend today, falling 3.8 per cent at $56.08 per barrel while Brent North Sea Crude slid 3.5 per cent at $59.17. This comes as eight OPEC+ members announced a sharp increase in production, adding to fears of oversupply of crude.
With this development, Nigeria is facing a wider budget deficit and a weaker exchange rate. At the core of this looming danger is the 2025 budget which was predicated upon an oil benchmark rate of $75 per barrel and daily production of 2.06 million barrels.
If the current shortfall continues, it is estimated that Nigeria will lose up to N19.6 trillion in projected oil revenue. With oil-related income in jeopardy, the fiscal deficit could balloon from the planned N13 trillion to as much as N30.79 trillion.
Closing this deficit would require a mix of borrowing, aggressive cost-cutting, and a step-change in non-oil revenue mobilisation.
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In addition to the fiscal imbalance, a potentially more destabilizing consequence is renewed pressure on Nigeria’s foreign exchange market. Historically, the naira has tracked oil prices in lockstep.
When oil prices fall, the naira typically depreciates due to reduced dollar inflows, reserve erosion, and increased speculative activity. Already, the exchange rate has weakened to around N1,600/$, surpassing the N1,500/$ benchmark set in the 2025 budget.
With oil revenue shortfall and reduced FX earnings, Nigeria could face a weaker and unstable naira.
