Nigeria is facing significant fiscal challenges as global economic uncertainties, including the trade war initiated by former U.S. President Donald Trump, continue to disrupt its financial plans. The country’s ambitious 2025 fiscal budget of N55 trillion, largely dependent on oil revenues, is now under threat due to falling crude prices, decreased oil production, and slow tax reforms. The global recession fears and tariff wars have compounded Nigeria’s financial strain, with crude oil prices dropping below the government’s budgeted benchmark, exacerbating a revenue shortfall. This could trigger a rise in borrowing and further inflation, placing pressure on the country’s economic stability.
The government’s target of producing 2.06 million barrels per day (mbpd) of crude oil is already unmet, with Nigeria struggling to reach even 1.5 mbpd in recent months. In addition, a continued dip in oil prices, now hovering around $64 per barrel, has led to an estimated loss of over N2.5 trillion in unrealized revenue in just the first quarter of 2025. Experts are predicting further declines in oil prices, potentially down to $50 per barrel, which would significantly widen the budget deficit and deepen the financial crisis. The Nigerian National Petroleum Company Limited (NNPCL) is also facing challenges related to oil theft and high production costs, further hindering efforts to increase output.
The situation is made worse by a sluggish pace in the implementation of tax reforms that could boost non-oil revenue. Despite proposals for tax increases, including a hike in Value Added Tax (VAT), the House of Representatives has rejected key components of the reform. The fiscal deficit, already forecasted to exceed N13 trillion, could see even larger shortfalls if production issues continue. There are concerns that the government’s overreliance on oil revenues, which account for a significant portion of foreign exchange and budget funding, is making the economy vulnerable to global market fluctuations and internal inefficiencies.
Economists and industry experts are calling for urgent actions to stabilize the economy, including reducing government expenditure and accelerating efforts to diversify Nigeria’s economic base. Experts like Segun Ajibola and Prof. Adeola Adenikinju highlight the risks of continued reliance on oil, urging a shift toward sectors such as agriculture, manufacturing, and tourism. Additionally, concerns about the flawed budgeting process and Nigeria’s habit of excessive borrowing are growing, with critics calling for greater fiscal discipline and an overhaul of the current system to ensure that future budgets are more realistic and impactful for the citizens.