• Contemplates debt funding support of over $2 billion
• Oil price, production parameters above market reality
The Federal Government is considering adding a fresh liability of $2.2 billion to the existing debt overhang as part of its plans to fund an ambitious spending envelope of N47.9 trillion next year.
Whereas details of the 2025 budget, which are yet to be presented remain sketchy, the Minister of Budget and Economic Planning, Atiku Bugudu, yesterday told journalists that the Federal Executive Council (FEC) had approved the much-awaited Medium-term Expenditure Framework (MTEF) for 2025-2027.
The plan, he said, contained a projected expenditure of N47.9 trillion for 2025, with the government expecting to rake in much of the revenue from oil production, which is pegged at 2.06 million barrels per day (bpd) at $75 per barrel.
FEC also pegged the exchange rate at N1,400/$ with a growth estimate of 6.4 per cent. The parameters, which are wide considering current performance, would be subjected to public scrutiny in the coming days.
The oil production target is about 42 per cent higher than the last three-month moving average. According to data sourced from the November monthly oil market report released by the Organisation of Petroleum Exporting Countries (OPEC), Nigeria’s production volume stood at 1.39 million bpd and only edged up to 1.43 million bpd in October. The Nigerian National Petroleum Company (NNPC) Limited yesterday, however, said Nigeria’s oil production has reached 1.8 million barrels per day (bpd).
The production volume, according to OPEC, is significantly higher than where the country was last year but still far behind where the FG hopes to push it to next year. There are also concerns about whether the Niger Delta region tension has calmed substantially to guarantee a two million bpd oil production.
OPEC’s quota system is likely to undermine the country’s ambition. Earlier, the OPEC+ set Nigeria’s crude production quota at 1.5 million bpd until December 2025.
If the government beats the supply hurdle, the price could pose a major setback. As of press time, Brent crude was trading at below $72, even as uncertainty continues at the future price outlook of the commodity. Many experts would think that the FG’s price projection is not conservative enough.
If the projections fail, as they are likely to, the fiscal deficit will widen while the government takes up more debt to plunge the hole. Already, the Minister of Finance, Wale Edun, has reportedly disclosed the government’s plan to issue Eurobond and sukuk bonds totalling $2.2 billion to help finance the 2025 budget. The proposed bonds, which will be presented to the National Assembly soon for ratification, comprise a $1.7 billion Eurobond and $500 million of sukuk, the minister disclosed at a briefing in Abuja yesterday.
An investment banker, Tolulope Alayande, said the parameters revealed by Bagudu, are not rooted in the MTEF. He said: “I don’t know how this government is planning the 2025 budget, but I don’t see the alignment here. The MTEF is yet to be presented and may be presented before the budget, all between now and the end of next month. So, we are going to have both the MTEF and budget making it to the National Assembly within 50 days. Will the time be enough for the lawmakers to do a thorough job? I don’t think so.” On his part, Mohammed Ande, who is a retired banker, said he was confused about the untidy nature of the fiscal roadmap.
“This is shocking and amusing. How will this work? I guess we just have to wait for the next few days to know the workability of this scenario.” Commenting on some of the fundamentals, Mohammed faulted the economic growth of 6.4 per cent, increasing oil production to above two million barrels a day and pegging the oil price benchmark to $75.
His explanation: “Let me take them one by one. The first issue is targeting 6.4 per cent growth. How will the government achieve this considering the country is doing below three per cent now? What are the planned economic activities that will propel such growth?
“Then I saw a projection of crude oil production that is above two million barrels per day. Yes, that can happen because we are doing about 1.4 barrels per day excluding condensate. If the right things are done, I believe that is achievable. But can the government tackle oil theft and mobilise enough investment to record such a feat within such a short time?
“Also, $75 per barrel of crude oil next year is not looking very sure at this time. All eyes are on the Russia and Ukraine war, the Israel and Hamas trouble and then the next United States President, Donald Trump. We know how unpredictable Trump can be. How far will his policies affect the global economy and crude oil prices? These are issues that will unfold as the year goes by.”
While the 2025 proposed budget is not radically different from 2024 as far as oil parameters are concerned, Mohammed expressed worry that an unfunded fiscal deficit is almost inevitable.
From 2013 to 2023, Nigeria consistently fell short of its crude oil production targets as planned in the budget, largely due to factors like infrastructure issues, oil theft, and OPEC+ production cuts.
In 2013, the production target was 2.5 million barrels per day (bpd), but actual production was around 2.1-2.2 million bpd, a shortfall of 300,000 bpd. The 2014 budget pegged production at 2.3883 million bpd, but actual production was 2.05 million bpd, missing the target by 450,000 bpd. In 2015, the target was set at 2.27 million bpd, with actual production averaging 1.9 million bpd, falling short by over 300,000 bpd.
In 2016, production was targeted at 2.2 million bpd, but it fell to a low of 1.4 million bpd mid-year due to disruptions, averaging 1.6 million bpd by year-end. The 2017 budget set production at 2.2 million bpd with actual production around 2.04 million bpd. In 2018, the target was 2.3 million bpd, but production reached only 1.84 million bpd. For 2019, the projection was 2.3 million bpd at $60/barrel; production dropped to 1.5 million bpd by December.
In 2020, production was targeted at 2.18 million bpd at $57/barrel, but actual production was around 900,000 bpd due to COVID-19. In 2021, the budget set production at 1.86 million bpd, but under OPEC+ cuts, production averaged 1.4-1.5 million bpd. In 2022, projected production was 1.88 million bpd; however, actual production struggled at around 1-1.5 million bpd, with losses attributed to theft and sabotage.
In 2023, the production target was 1.69 million bpd, but by mid-year, Nigeria was producing just 1.2 million bpd, including condensates. In December 2023, NNPCL entered into several agreements under Project Gazelle and other initiatives to address financial commitments. Through a $3 billion Afrieximbank loan under Project Gazelle, NNPCL committed to supplying 90,000 barrels per day (bpd) of crude oil to settle this debt, which funds tax and royalty prepayments on its Production Sharing Contract (PSC) assets. By year-end, $2.25 billion had been drawn from this facility, with repayments starting in June 2024.
NNPCL’s subsidiary, NNPC Exploration & Production Limited (NEPL), also entered a forward sale deal with Eagle Export Financing Limited, holding $352.88 million in capital commitments to deliver at least 1.8 million barrels of crude oil. Another agreement with Bestaf, under Project Brogue, funded the purchase of Chevron’s 40% stake in OML 86 and 88, with a remaining $81.7 million owed.
In total, NNPCL’s debt portfolio includes $5.8 billion in crude-backed loans, alongside a petroleum product debt of $6.8 billion, bringing total debt to $12.6 billion.
Renowned energy economist and Professor Emeritus, Wunmi Iledare raised concerns about the N47 trillion budget, valued at about $28.6 billion at the current exchange rate of N1650 while adding that it is an equivalent of the 2014/15 budget which was just about N4.7 trillion.
“Everything has gone up by ten-fold. The budget is bullish and to me, it sends a wrong signal concerning the expected exchange rate applied,” Iledare said while adding that if the dollar exchange rate goes down, that is, if Naira appreciates against the dollar, which is more likely than not, then fulfilling the budget items may be less likely than not.
Iledare expressed optimism about Nigeria’s crude oil production, noting that with increased rigs and active production from both the Indigenous Petroleum Producers Group (IPPG) and international oil companies (IOCs), achieving a production goal of over two million barrels per day is possible in 2025.
Regarding oil price assumptions, Iledare believes the budget’s $75 per barrel estimate is reasonable within a projected range of $70 to $80. He also highlighted the potential stabilising impact of the Dangote Refinery on foreign exchange demand. By reducing Nigeria’s reliance on imported petroleum products, the refinery could lessen pressure on forex, making the naira less volatile and potentially lowering the currency amount required to meet budget goals.
A former President of the Chartered Institute of Bankers of Nigeria (CIBN) and an economics professor at Babcock University, Prof. Segun Ajibola said the real challenges for Nigeria’s 2025 budget lie in inflation and exchange rate, which continue to resist policy efforts. He noted that current inflation and exchange rates have significantly deviated from projected figures for 2024, posing risks for the new budget’s success.
“These two variables must be better managed,” Ajibola stressed, warning that if inflation and currency instability persist, they could undermine the implementation of the 2025 budget. He believes Nigeria’s target of producing 2.06 million barrels of oil per day (bpd) in 2025 is achievable with heightened efforts to curb vandalism, terrorism, and communal conflicts in the Niger Delta region.
“Production levels are already nearing 1.8 million bpd, so with a little more push, the target is within reach,” Ajibola said. Ajibola also considers the government’s oil price assumption of $75 per barrel reasonable given current global market dynamics. However, he cautioned that oil prices are influenced by factors beyond the control of oil-exporting countries, meaning there could be fluctuations that impact the budget.
President of Nigeria Economic Society (NES), Prof. Adeola Adenikinju said crude oil already committed in future sales would impact the budget by reducing the amount of output that is realistically available for revenue generation for the budget, except those pledges are reflected on the debit side of the budget.
“I think the benchmark price of $75 per barrel is realistic, although there would be just a little wiggle room for major savings. However, I think the oil production benchmark of 2.06 mbd is too optimistic. We have consistently overestimated oil production in previous budgets,” he said.
Nigerians had expressed worry over the delay in the submission of the MTEF 2025-2027 to the National Assembly a few weeks to the end of the year, a situation they fear may also delay the presentation of the 2025 budget to the National Assembly and affect the quality of debate on the budget.
The Fiscal Responsibility Act (FRA) mandates the Minister of Budget and Economic Planning to, before the end of the second quarter of each financial year, present the Medium-Term Expenditure Framework (MTEF) to the Federal Executive Council (FEC) for consideration and endorsement. Thereafter, the MTEF as endorsed by the FEC shall take effect upon approval by a resolution of each House of the National Assembly.
If that provision was observed, the MTEF 2025-2027 should have been endorsed by the Federal Executive Council by the end of June 2024 and should have been presented to the National Assembly in August 2024.
A professor of accounting and financial development, Lead City University, Godwin Oyedokun, said the late approval of the MTEF for 2025-2027 by the Federal Executive Council (FEC) is a cause for concern for several reasons because, according to him, it compromised the budgetary process .
“The late approval significantly undermines the quality of the budgetary process. It limits the time available for thorough scrutiny, analysis, and public input,” he said. He said the Lawmakers may be forced to rush through the budget approval process, increasing the risk of errors and omissions.
However, he said it is important not to sacrifice quality scrutiny on the altar of meeting deadlines. “Even if the budget proposal came late, lawmakers should conduct a thorough review of the budget proposal, paying close attention to revenue projections, expenditure allocations, and debt sustainability.
“They should engage with civil society organizations, experts, and the public to gather feedback and ensure that the budget aligns with the needs of the people. And of course, they should ensure that the budget adequately funds critical sectors such as education, healthcare, and infrastructure.” (Guardian)
