Nigeria’s oil revenues are likely to fall by up to 80 percent amounting to a revenue shortfall of about $15 to $17 billion in 2020. According to Bismarck Rewane, a member of President Buhari Economic Advisory Council, crude sales will plunge this year leading to 3.4 percent contraction in the economy.
Nigeria’s economy is feeling the heat due to a decline in oil prices and demand for the product. Oil accounts for 90 percent of Nigeria’s exports, 30 percent of banking sector credit, and contributes 50 percent of the government revenues. For instance, data from the Nigeria National Petroleum Corporation shows that in January 2020 oil raked in $434.85 million.
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A decline in oil revenues is likely to put pressure on fiscal spending with total external debt likely to rise to $36 billion in 2020. This, in turn, will increase the debt service burden which is already in excess fo 96 percent of independent revenues. The IMF predicts that Nigeria’s public debt will rise to 34.8% of gross domestic product this year, from 29.1% in 2019, and will peak at 37.4% in 2022.
Foreign Exchange pressures
Nigeria is Africa’s biggest oil producer with 37.5 billion barrels proven reserves and produces 1.99 million barrels of oil per day (bopd). Therefore, the crash in global oil prices limiting the dollar inflows has forced the Central Bank of Nigeria to devalue the naira to 360 to the U.S. dollar, down from 306.
Further, Nigeria’s foreign exchange rate remains volatile seeing that oil sales, denominated in US dollars, contribute 90 percent of Nigeria’s foreign exchange. In April, the IMF approved a $3.4 billion emergency loan for Nigeria, to help it curb the economic effects of COVID-19 boosting the country’s external reserves.