By Louis Aminadokiari Koko
On 18 December, 2024, the President of Nigeria, Senator Bola Ahmed Tinubu presented a fiscal appropriation bill of N47. 9 trillion to be financed by taxes, export revenues from oil and gas, and non- oil. However, these projected receipts are not sufficient to have a balanced budget. Therefore, the budget has a deficit of N13. 4 trillon to be financed by both domestic and external debts.
It is also projected that Nigeria will produce 2.01 million barrels per day of crude oil and the price has an average projected estimate of $75 /barrel . What this means is that if we produce the volume of crude oil and the price averages on $75/barrel, we need to still borrow about N13.14 billion to finance the 2025 budget as to deliver on its theme: Budget of Restoration, Securing Peace and Rebuilding Prosperity.
As lofty and assuring this budget theme sound, it appears that what is coming out of the land of the free and the country of the brave ( USA) whose current President is a maverick and a transactional politician is capable of causing oil price shocks for oil revenue dependent countries of the world, if US oil companies ramps up crude oil production which may likely cause global oil glut in the international market .
If USA becomes self sufficient in crude oil production, then the oil supply in the international market may exceed demand thereby causing downward adjustments in prices of crude oil.
I foresee drastic decrease in crude oil price to about $45 to $55 per barrel. This forecast is based on the average oil price in 2016 during DT 1.0 administration.
If this scenario painted here plays out in 2025, that is average crude oil price of $45 to $55 per barrel in the international market, how can Nigeria finance the 2025 budget that already has a deficit of over N13 trillion?
Assuming that Nigeria produces the targeted 2.01 million barrels per day, can Nigeria sell this daily production quantity if crude oil supply is already saturated in the international market?
What may likely happen is that the gulf in the FG 2025 budget will further increase , that is, the deficit will further expand with its consequences on the economy. The federal government maybe unable to finance the capital projects, which may lead to under performance.
Other consequences of likely oil glut as germane to our economy are many but not limited to the following.
- Exchange rate of naira to dollar will continue to increase causing serial depreciations of naira. This is not good for an import dependent country like Nigeria.
- Interest rates will continue to increase and crowding out domestic private investments.
- Cost of living crisis will escalate
- Poverty will increase
- Crime will increase and Nigeria maybe in dire situation.
- Nigeria may find it difficult to service her external debts and this can cause the country to move into debt trap.
All these adverse consequences will flow out of President Donald Trump’s decision to ramp up oil production and supply which is likely to cause global oil glut and decrease in average price of oil in the international market this year. Nigeria will be worse hit by this Trumpism effect.
Louis Aminadokiari Koko, Esq (PhD)
