Nigeria’s fiscal stability faces renewed pressure as global oil prices fall and crude production continues to trail official targets, heightening the risk of a wider budget deficit and higher borrowing needs.
Brent crude has been sliding in recent weeks, trading below the Federal Government’s 2025 budget benchmark of $77.96 per barrel. The decline is driven by weaker global demand expectations and geopolitical tensions that have clouded the energy market outlook.
On the domestic front, crude oil output has averaged about 1.5 million barrels per day (bpd) this year.
While this marks an improvement from last year’s levels, it remains short of the 1.78 million bpd target in the budget and well below the aspirational 2 million bpd figure that officials have repeatedly set as a goal.
Since assuming office in 2023, President Bola Tinubu has implemented several market-oriented reforms aimed at boosting government revenue and improving fiscal discipline.
The removal of the petrol subsidy has been the most notable, unlocking funds for the Federation Account Allocation Committee (FAAC) to distribute to states and the federal government. Monthly FAAC disbursements have since reached record highs.
Currency reforms and operational changes at the Nigerian National Petroleum Company Limited (NNPC) have also been introduced, resulting in modest gains in oil output.
However, reports of internal tensions within the NNPC have raised concerns about the sustainability of those improvements.
Historically, periods of lower oil prices have forced Nigerian governments to rein in spending.
But with the 2027 general elections now within sight, economists say the political appetite for fiscal tightening is limited.
The administration is banking on the newly enacted Tax Reform Act to boost non-oil revenues and reduce dependence on crude.
However, with Nigeria’s tax-to-GDP ratio still at just 9% — one of the lowest globally — the scale of additional tax revenue in the short term may be insufficient to offset oil-related shortfalls.
The 2025 appropriation bill already projects a record N13 trillion deficit as the government pursues ambitious infrastructure investments alongside social programmes such as the national student loan scheme and targeted grants.
Lower oil receipts could have knock-on effects beyond the fiscal balance.
If crude prices remain subdued and output fails to pick up, Nigeria could face the unwelcome combination of a wider fiscal deficit, higher debt servicing costs, and tighter foreign exchange liquidity a scenario that risks slowing economic growth.
Naijaonpoint Research opines the path forward will depend on three key factors:
Naijaonpoint Research opines the path forward will depend on three key factors:
Global oil market trends – A recovery in prices could ease fiscal strain, but current supply and demand dynamics point to continued volatility.
Domestic production gains – Sustained improvement in security and infrastructure at oil-producing sites is critical to lifting output closer to target.
Non-oil revenue mobilisation – The success of tax reforms and diversification efforts will determine how quickly Nigeria can reduce its vulnerability to oil price swings.
Without progress on at least two of these fronts, the Tinubu administration may be forced to rely more heavily on domestic and external borrowing to finance its spending plans, a move that could raise debt service costs and test investor confidence.