Nigeria’s budget deficit under threat after oil price drop

by Trust Matsilele 0

This follows a sharp drop in oil prices which account for Nigeria’s foreign earnings.

“A 20 per cent fall in the oil price combined with disappointing oil production would increase Nigeria’s budget deficit by 60 per cent but still leave it at less than three per cent of GDP,” read part of the report.

(READ MORE: Low GDP contribution from Nigeria’s oil & gas sector)

“Sixty to 75 per cent of government revenues in Nigeria are derived from oil as in 2013 the total tax raised from income tax, excise duty and VAT combined was just 33 per cent of total Nigeria oil revenues.”

The report also added that the rapid expansion of the non-oil sector compared to the stagnant oil sector would affect the economy as revenue collection in the non-oil sectors was difficult.

The report, which aims to help investors understand the fiscal and political context in the sub-Saharan Africa noted that Nigeria was most likely to see overspending leading up to the 2015 elections.

Apart from Nigeria, Ghana is another West African economy under pressure according to the document.

(READ MORE: Ghana hits a roadblock as fiscal instability undermines growth)

“With a rapidly increasing interest bill, Ghana is the most vulnerable to higher rates. Our stress tests show that a spike up in interest costs could leave the deficit at over 16 per cent of GDP,” the report further read.

“Analysing the performance of FX, external debt, local rates and equity markets over the ‘taper tantrum’ of summer 2013 shows Ghanaian assets are most vulnerable to as sell off.”

The report also covers topics such as the cost of fighting terrorism, subsidy and tax reform, the long awaited Petroleum Industries Bill in Nigeria, the devolution process in Kenya and the establishment of Sovereign Wealth Funds in all three (Ghana, Nigeria and Kenya) countries.