Decreased oil output increases higher budget deficit risk for Nigeria


According to the report, the revenue exceeded the provisional monthly budget estimate by 11.1 per cent.

“It’s hard to read directly into the numbers without looking at it in terms of growth and composition. In terms of growth, if you compare month on month June to July, all revenues increased about 11 per cent while non-oil revenues increased about 79 per cent,” Vetiva Capital economist Adedayo Idowu told CNBC Africa.

“That already told you that it was it was a compensation for oil revenues by non-oil revenues. If you look at the composition as are June, oil revenues were about 71 per cent of total government revenue. By July it dropped to about 61 per cent. That told you again that the challenges we have with the oil sector in Nigeria are real.”


Oil production decreased from 2.3 million barrels per day to 1.8 million barrels per day. In the second quarter, it was reported that the oil and gas sector output contracted 1.15 per cent from 0.5 per cent in the first quarter of the year.

These factors have increases the risk of a higher budget deficit.

 “The government’s 2013 budget deficit, in our view, was unrealistic. They were looking at about 1.3 per cent of GDP. Oil revenues in Nigeria, for some time, have underperformed and that’s because they’re some first line charges are applied to oil revenues that are not included in the budget,” Idowu explained.

“You have things like joint venture cash goals, petroleum subsidies that are deducted from source, that already constitutes a problem. Now you have the issue of the reduction in oil production.”

Production shortages and oil theft have also added to the steady decline, and have limited options to reverse the effects.

“It’s either you increase borrowing, draw down from your excess crude or you cut expenditure. Excess crude, we’re sitting at five billion dollars and then you look at cutting expenditure: the first line of cutting is capex. The options are pretty limited,” said Idowu.