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.
Why Crude Oil Price is falling
- OPEC+ Supply Boost – The cartel is unwinding production cuts faster than planned, adding roughly 2 million bpd to global supply in 2H 2025.
- Combined with non-OPEC growth, this is swelling inventories to levels that have historically driven 25–50% price drops.
- Weak Demand Outlook – Slowing global growth and rising trade tensions are curbing consumption. Analysts expect Brent to average $67.84 in 2025, possibly falling to $63 by mid-2026.
- Tariff and Geopolitical Risks –Uncertainty from tariff threats and geopolitical flashpoints is disrupting markets. U.S. tariff threats over Indian Russian oil imports, sanctions in the making, and broader trade policy shifts are fuelling market risk aversion.
- Bearish Forecasts – The EIA projects Brent could slip below $60 by Q4 2025 and hover near $50 in 2026 on persistent oversupply and tepid demand.
Reform gains at stake
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.
Political economy realities
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.
What this means
Lower oil receipts could have knock-on effects beyond the fiscal balance.
- With oil revenues accounting for the bulk of export earnings and a significant share of federally collected revenue, any sustained drop in prices or output will widen the fiscal gap.
- Nigeria’s total public debt stood at ₦149 trillion as of mid-year and is expected to rise if oil revenues weaken further.
- Debt service already consumes a large portion of government income, and while recent reforms have eased the debt service-to-revenue ratio, analysts warn the improvements could be reversed if oil earnings fall short for an extended period.
- Reduced dollar inflows may pressure Nigeria’s foreign exchange reserves, limit the central bank’s capacity to stabilise the naira, and contribute to further imported inflation.
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.
What we are seeing
Nairametrics 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.
