Nigeria’s 2025 budget is facing major risks as declining oil production and falling global crude prices threaten the country’s revenue projections.
The budget, which sets an ambitious crude oil production target of 2.06 million barrels per day (mbpd) and a benchmark price of $75 per barrel, is now under pressure due to economic and industry challenges.
With oil contributing about 70 percent of government revenue and 90 percent of foreign exchange earnings, analysts warn that these setbacks could pose a significant challenge to the nation’s economic stability.
Recent government data shows that Nigeria’s oil production has dropped below 1.5mbpd, missing the 2.06mbpd target set in the 2025 budget.
At the same time, global oil prices have fallen to around $70 per barrel, well below the $75 benchmark used for revenue projections.
This double setback could lead to serious revenue shortfalls, forcing the government to cut spending on key sectors like infrastructure, healthcare, and education, increase borrowing, or introduce new taxes.
These measures could further burden businesses and consumers already struggling with inflation. For decades, Nigeria has depended on crude oil as its primary source of revenue, despite repeated calls for economic diversification.
The 2025 budget was built on assumptions of stable production and favourable prices, but multiple challenges—including insecurity, oil theft, pipeline vandalism, and underinvestment in the oil sector—have disrupted these projections.
Although the removal of fuel subsidies was meant to ease fiscal burdens, it has instead led to higher fuel prices and increased inflationary pressures, making life more difficult for businesses and consumers.
According to oilprice.com, Brent crude fell to $70.73 per barrel, last week, while West Texas Intermediate (WTI) crude dropped to $67.57 per barrel—the lowest since December 2024.
A recent Reuters report indicates that OPEC+ (the Organisation of Petroleum Exporting Countries and allies like Russia) plans to increase oil output in April, which could further push prices down. Although falling oil prices may mean cheaper fuel for Nigerians, it also creates a major revenue problem for the government, making it difficult to fund budgeted projects.
The Nigerian government projected N19.60 trillion (about 56% of the total N34.8 trillion revenue) from oil.
However, with crude prices falling and production declining, this revenue expectation is now at risk. In addition, Nigeria’s average daily crude and condensate production has slipped from 1.7mbpd in January to 1.6mbpd in February and currently stands at 1.5mbpd.
This decline could hinder crude supply to the Dangote Petroleum Refinery and other refineries, limiting domestic refining capacity and keeping Nigeria dependent on fuel imports.
One of the few revenue-saving factors is that the naira-to-dollar exchange rate remains above N1,400 per dollar, which is N100 higher than the projected rate in the budget.
This may help cushion some foreign exchange earnings. However, without improved production, the country will struggle to meet its oil revenue targets in the coming months.
Another challenge is the naira-for-crude deal, which allows refineries to buy crude in naira instead of dollars.
However, the first phase of the deal ends in March 2025, and future supply is now uncertain.
According to NNPC spokesperson, Olufemi Soneye, discussions are ongoing to renew the contract, but this will depend on crude availability.
To prevent a budget crisis, the Federal Government is considering several strategies.
Authorities are working to strengthen tax collection, expand digital taxation, and encourage local manufacturing to reduce dependence on oil revenue.
However, increasing taxes on businesses and individuals during an economic downturn could worsen financial struggles for many Nigerians. Nigeria may seek additional domestic and international loans to cover the revenue shortfall.
But this raises concerns about debt sustainability, as debt servicing already consumes a large portion of government revenue. The government also aims to address security risks in the Niger Delta, fix regulatory challenges, and restore investor confidence in the oil and gas sector.
However, Nigeria competes with other African nations for foreign investment, and inconsistent policies have made investors hesitant.
Public-private partnerships (PPPs) are another option for funding major infrastructure projects, but economist Cyril Ampka warns that weak legal frameworks and policy inconsistency in Nigeria could limit the success of PPPs.
Beyond Nigeria’s internal challenges, global factors are adding to economic uncertainty. OPEC+ output increases may push oil prices even lower, while U.S. interest rate hikes, China’s economic slowdown, and geopolitical tensions such as instability in the Middle East are influencing market volatility.
The budget shortfall could have severe consequences for businesses and individuals. Reduced government spending could lead to slower economic growth, fewer job opportunities, and delays in essential projects.
Higher taxation may increase costs for businesses and consumers, while investor uncertainty could lower foreign direct investment (FDI).
For ordinary Nigerians, the effects are already being felt. Inflation, a weakening naira, and rising fuel costs are straining household budgets.
Many families are cutting back on essentials, while small businesses struggle with higher expenses.
In the coming months, Nigeria must make tough decisions on spending priorities, revenue generation, and economic reforms.
Economist Stephen Iloba believes the government must urgently address oil production challenges to salvage the budget. “If oil production does not improve and global prices remain low, Nigeria may face a difficult fiscal year in 2025, with potential budget cuts, increased borrowing, and economic hardship for its citizens,” Iloba warned.
It is the consensus opinion of analysts that the success of the 2025 budget now depends on Nigeria’s ability to reverse production declines, implement strong economic reforms, and stabilise its fiscal outlook.
