The new strain of the Corona virus is a harsh reminder of how delicate the situation remains after a year of human loss, economic shock, and historic oil market destruction. Nigeria and other oil producers’ hope of increased production will have to be managed with cautious optimism as the slow pace of vaccine administration, the emerging new COVID-19 virus strains, and high inventory levels are expected to affect demand and production as OPEC and OPEC+ meet today. Having agreed to raise quotas by 500,000 barrels a day for January— a compromise between members, despite uncertainty about pandemic recovery, the organization will decide February’s output by maintaining the conservative quotas or ease the cuts. Having recorded a decline in revenue of 42.3 per cent to N842.09 billion in the third quarter of 2020, compared with a benchmark of N1.459 trillion, Nigeria’s revenue problem may worsen, forcing it to rely even more on debts for its 2021 budget. With more borrowings, Nigeria’s public debt might hit N35 trillion, having risen to N31tr on June 30, 2020, according to the Debt Management Office (DMO).

While prices had continued to hover around $50 for Brent Crude, the Organization of the Petroleum Exporting Countries (OPEC) had last month, lowered its oil demand forecast for 2021 to 95.89mbpd from 96.26mbpd, according to the latest version of the Monthly Oil Market Report. Indeed, some of the concerns spur from the fact that the country’s deficit might rise beyond N5.196 trillion, if the revenue targets are not met, especially in the light of the second wave of the corona-virus. Nigeria’s quota, which is adjusted monthly, has oscillated between 1.3mbpd and 1.5mbpd in the past months. On many occasions, Nigeria and a few other countries have been queried for exceeding the rations. Also, the 2021 production benchmark is about 400,000 above its current quota, which experts said might not improve remarkably due to the pandemic.

President Muhammadu Buhari on Thursday, December 31, 2020 in Abuja signed the 2021 Appropriation Bill of N13,588,027,886,175 into law. Key parameters of oil production and price benchmarks at 1.86 million barrels per day and $40 per barrel were retained for the 2021 fiscal year. The budget estimate was increased by the sum of N505, 607,317,942 from the estimate of N13, 082, 420, 568,233 presented to the joint sitting of National Assembly by President Buhari on Oct. 8, 2020. The signed budget comprises total Capital Supplementation of N1,060,751,051,650. Statutory Transfer stands at N496,528,471,273; recurrent Expenditure of N5,641,970,060,680 and Gross Domestic Product (GDP) growth rate of 3.00 Per cent. It also provides N3,324,380,000 trillion for debt servicing while N5,641,970,060,680 is for Recurrent Expenditure; and N4,125,149,354,222 for Capital Expenditure. Experts had questioned the feasibility of other revenue targets as contained in the budget proposal, saying a number of them were not achievable. The inability to meet either the crude production or price benchmark will expand the deficit, already put at 40 per cent, and make the budget largely unimplementable. The latest data from the National Bureau of Statistics showed that crude oil remains Nigeria’s dominant revenue earner, as N2.78 trillion of the almost N3 trillion export earnings in the third quarter of 2020, came from oil export. To finance its budget, Nigeria needs to produce more as the country heavily depends on oil proceeds. One striking similarity between the current Forex situation and that of 2016 is the fact that both are linked to oil price crises, showing that the diversification policy action of the government has not yielded sufficient results to insulate the economy against oil price shock.

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