Doubts over the 2025 revenue target

A new report has shown that the Federal Government’s revenue target of N36.35 trillion as contained in the 2025 budget could be at risk because of oil earnings constraints, low tax base, foreign exchange volatility, global tensions and election cycles and other factors. In its latest report on Nigeria’s budget and Economic outlook, PriceWaterhouseCoopers(PwC) warned that risks in global oil market and rising geopolitical tensions may continue to leave Nigeria exposed to externally shocks.      The PwC report revealed that a combination of these factors will play an important role in the price of crude this year. The report also said that despite the coming on stream of the 650,000 capacity Dangote refinery, demand for petroleum products in Nigeria will remain sluggish in the short and medium term as a result of high prices of the commodities. Government should take the PwC report seriously and heed the advice in the best interest of the economy.   

Considering the domestic and external challenges of the economy, achieving the revenue target of N36.35trillion is unrealistic. Therefore, there is need for the award of new oil licences in order to attract the much-needed investments in the oil and gas industry and raise funds. Although the report is optimistic that the economy will expectedly record sustained growth and a trade surplus this year, driven mainly by increased oil output and anticipated high crude oil prices in the global oil market, the prospects appear bleak based on current oil price of $71 per barrel.    

This is a two-week low, against the $75 per barrel benchmark in the 2025 budget. Global average oil price in 2024 was $78 per barrel. In December 2024, after years of stalling, Nigeria finally hit its OPEC volume, reaching 1.5 million barrels per day. This excludes Condensate of about 200,000bpd. This year, the government has proposed 2.06mbpd oil production and oil benchmark of $75 per barrel. Crude oil price and the exchange rate are the major determiners of the costs of refined petroleum products.   

High oil price is dependent on increased China demand, OPEC supply restrictions, and other unforeseen issues. The N36.35trillion revenue target has also come under threat as President Donald Trump eyes oil production increases. A recent report by the Centre for Promotion of Private Enterprises revealed that the evolving outcome of the Trump presidency would impact the outlook for the Nigerian economy. The Trump administration has repeatedly said it will increase oil output to reduce energy prices in the US and globally. 

This will likely weaken crude oil production in Nigeria, and consequently impact the outlook of Federal Government’s revenue target and FX earnings this year. This also has implications for government’s fiscal deficit, debt, and exchange rate. Nigeria is currently rated among the top 10 indebted countries in the world. To achieve the N1500/$1 target in the 2025 budget, the government requires a significant increase in Diaspora remittances as well as an increase in foreign portfolio investment to ensure a positive balance of payments.

With the fiscal reforms in place, the Federal Government will hopefully achieve the N36.35trillion revenue target. However, the government should work towards effective implementation of the tax reforms anchored on boosting government revenue. Additionally, it will also be intentional in deepening the non-oil sector of the economy and alleviating the excruciating economic hardship in the country. It is also instructive that the International Monetary Fund (IMF) has equally advised the government to toe this line in revamping the economy.

Similarly, we enjoin government policymakers to design concrete blueprint towards meeting its projected revenue target. At the same time, oil earnings’ constraints and other challenges identified in the PwC report should serve as a wake-up call on the government to do the needful and rejig the economy. Nevertheless, there should be deliberate effort by the government to promote domestic production of goods and services as well as the development of exports.

Unfortunately, past efforts in this regard, did not yield the expected results. Above all, the government should strive to urgently address the current productivity shortcomings in the real sector, make the domestic production competitive. In view of the present global developments, the government should map out plans to protect local industries against unfair competition from imports.