Nigeria Faces Economic Crisis as Oil Prices Dip Below $60, Threatening Fiscal Stability and the Naira
Nigeria is facing a dual economic crisis as Brent crude oil prices plummet below $60 per barrel, sparking fears of a destabilized exchange rate and a widening fiscal deficit. This sharp decline, driven by increased oil production from OPEC+ and weakening global demand, threatens to derail the country’s 2025 federal budget, which was based on a $75 per barrel price and a production target of 2.06 million barrels per day. In reality, oil prices have fallen to $59.25 per barrel, and production has lagged, averaging only 1.7 million barrels per day. As a result, Nigeria faces a projected N19.6 trillion shortfall in oil revenue.
The financial implications of these developments are severe, with the country’s fiscal deficit expected to balloon from the planned N13 trillion to as high as N30.79 trillion. This widening deficit is exacerbated by the weak naira, which has dropped to around N1,600 per dollar, far exceeding the N1,500 estimate in the budget. These factors are straining Nigeria’s primary revenue source—oil exports—and will likely require a combination of borrowing, cost-cutting, and enhanced non-oil revenue collection to close the gap.
In addition to fiscal challenges, the weakening of oil prices has put significant pressure on Nigeria’s foreign exchange market. Historically, a drop in oil prices has led to a weakening of the naira, as reduced oil revenue inflows diminish foreign exchange reserves. Despite interventions by the Central Bank of Nigeria (CBN), which include utilizing dollar reserves and targeting specific exchange rate actions, there are growing concerns that sustained low oil prices will limit the CBN’s ability to stabilize the currency, especially if foreign inflows begin to decline.
Despite ongoing reforms, including the removal of fuel subsidies and the liberalization of exchange rates, investors remain cautious about Nigeria’s economic stability. The country’s limited influence within OPEC+ and the cartel’s decision to increase oil supply further complicate its outlook. With global oil prices expected to remain low for the foreseeable future, Nigeria is facing a challenging road ahead, requiring urgent adjustments to its fiscal strategies and efforts to boost non-oil revenues.