The Nigerian government revealed plans on Tuesday, May 5, 2020, to further revise the year’s budget oil benchmark to $20 per barrel. Minister of Finance, Budget, and National Planning, Zainab Ahmed disclosed the intention during a webinar conference themed “Citizens dialogue session on government fiscal policy decisions in response to the fall in oil prices and the COVID-19 pandemic.”
“We are in the process of an amendment that is bringing down the revenue indicator to $20 per barrel,” Ahmed said at the web conference. Similarly, the finance minister also stated that Nigerian oil and gas projects will be “delivered much later than originally planned” due to upstream budget cuts.
In recent months, global crude oil prices have plummeted due to an outbreak of the novel coronavirus across almost all nations of the world. Last month, Nigeria’s government revised the 2020 budget oil benchmark from $57 per barrel to $30 while production output was also revised from approximately 2.1 million barrels to 1.7 million per day. The latest announcement of an additional downward revision reflects how distressed the Nigerian economy is.
Nigeria, which emerged from a recession in 2017, was already contending with low growth of around 2 percent before oil prices plummeted. As Africa’s top oil exporter, it relies on crude sales for around 90 percent of foreign exchange earnings and more than half of government revenue. Thus, the decline in revenue following the sharp fall in the price of crude oil is taking a toll on the economy.
The Russia-Saudi Arabia oil price war in March, when the world’s largest producers flooded the market with oil to gain market share, exacerbated the oil price crash and culminated in a devaluation of Nigeria’s local currency and an outflow of foreign portfolio investments, as the economy took a beating.
Other key highlights released at the webinar conference by Ahmed includes plans to defer debt service obligations to 2021 and beyond until macro conditions improve. Shedding further light, the minister stated, “it is not debt forgiveness; it is just rescheduling of our obligations.”
Ahmed explained that the request for deferment of debt service was informed by the fact that Nigeria was spending as much as 58 percent to 60 percent of its revenue on debt servicing. However, the minister did not identify the concerned lenders the government was discussing the debt service deferment plans with.