Nigeria Banks on Higher Oil Revenue to Fund Record Budget
Nigerian President Bola Tinubu is banking on an increase in oil revenue to help fund record spending outlined in the 2025 budget that he presented to parliament on Wednesday.
The government envisions spending 47.9 trillion naira ($31 billion) and collecting 34.8 trillion naira of revenue in the fiscal year starting Jan. 1. That leaves a deficit of 13.1 trillion naira, or about 3.9% of gross domestic product, which the nation will fund by raising debt in local and international markets.
The government forecasts 4.6% growth in gross domestic product next year, which would be the fastest pace in a decade. That’s more optimistic than the 3.2% projected by the International Monetary Fund and the 3.7% anticipated by the African Development Bank. It expects annual inflation to slow to 15% in 2025, from more than 34%.
“This is an ambitious but necessary budget to secure our future,” Tinubu, who has championed an ambitious program to steady the nation’s finances since taking office in May last year, told lawmakers in Abuja, the capital.
Tinubu’s reforms, which included devaluing the naira, abolishing a complex multiple exchange-rate system and scrapping costly gasoline subsidies, have been welcomed by the International Monetary Fund and World Bank. But soaring inflation has led to an increase in the cost of living, worsening the plight of more than half of the population who live below the poverty line.
On the plus side, foreign investment in the oil and gas sector reached more than $5 billion, according to the president. The West African nation is seeking to attract $10 billion in new investments for deep-water gas exploration through tax incentives and other measures.
Nigeria will prioritize human-capital development, Tinubu said, and has allocated record spending to education, health care and other social services. The spending projection includes 15.8 trillion naira for debt-servicing costs.
The government’s revenue targets are based on an oil price of $75 per barrel and output off 2.06 million barrels per day — assumptions some analysts consider overly optimistic given that Nigeria has consistently missed its OPEC production targets in recent years.
The country produced 1.5 million barrels of crude per day last month, according to OPEC. The government has attributed the underperformance to theft, and says new projects are set to lift output. Brent crude oil traded around $73.5 on Wednesday.
“The reliance on oil revenues remains a major concern,” said Ikemesit Effiong, a partner and head of research at SBM Intelligence. “Volatility in global oil markets and Nigeria’s limited diversification undermine budget reliability. In addition, exchange-rate instability will complicate the allocation of funds and investment planning, which will impact the government’s aspirations to stimulate growth and reduce poverty.”
Tinubu said his administration plans to increase the ratio of revenue relative to GDP and take measures to reduce wasteful spending.
Some of the budget projections, including the oil-production target and pricing, appear to be unrealistic, said Ayodeji Dawodu, director of fixed income at BancTrust & Co. Investment Bank.
“The potential for the deficit to be larger than expected is inflationary in our view and paints a negative picture for the stability of the local currency,” he said. This could be the government’s last chance to rein in the deficit because the next budget will come amid electioneering for the 2027 election, he said.
