IEA forecasts Nigeria Will Still Not Meet Updated 2020 budget
- The International Energy Agency (IEA) has projected that there is a clear possibility Federal Government of Nigeria will not bee able to execute the updated 2020 budget.
- If the IEA prediction emerges it will still be difficult for the government to close the tax revenue gap, because the economy’s commercial hub, Lagos, has been lockdown to monitor the spread of COVID-19 for around three weeks
- The IEA how adds that in the second quarter of 2020 there is hope for a turnaround.
The International Energy Agency (IEA) has forecasted that there is a clear possibility Federal Government of Nigeria will not bee able to execute the updated 2020 budget recently submitted to the National Assembly for vetting. As you might well know, the adjusted budget was set at an oil price of $30 per barrel and crude oil production forecast of 1.7 million barrels per day.
Nigeria’s 2020 Appropriation Act was originally based on crude oil production amount of 2.18 million barrels per day, with a target of $57 per barrel. Brent Crude’s price as of April 15, 2020 has been $27.69 per barrel.
OPEC and its allies agreed last week to deeper reductions in production in a bid to save falling oil prices. Following the deal, Nigeria’s Petroleum Minister, Timipre Silvia, declared that the country will now produce 1,412 million barrels a day, compared with 1,829 million barrels a day. For this amount, if crude oil were sold in April at an average price of $25 bpd, then the country will receive N13.41 billion a day as against the N17.29 billion received before the cut.
Nigeria FG to Cut N1.5 Trillion from 2020 Budget Due to Coronavirus
Sadly, this structure has got a disturbing new twist. The International Energy Agency (IEA) has estimated global oil demand to be 29 million lower in April than it was a year ago; down to a point last seen 25 years ago (1995). This suggests that no amount of production cut by producers will completely offset the market’s near-term drop. This month has already been described as ‘Black April,’ especially for a country like Nigeria that has recently faced severe budget and income generation problems.
If the prediction of the IEA emerges it means that President Muhammadu Buhari’s economic team will have to do more to deal with the Nigeria budget revenue deficit quickly. That’s not everything.
It will still be difficult for the government to close the tax revenue gap, because the economy’s commercial hub, Lagos, has been lockdown to monitor the spread of COVID-19 for around three weeks. If the freeze continues past four months, 2020 will be a black year for Nigeria.
The IEA report stated that in the second quarter of 2020 there is hope for a turnaround. Some portion of the study said:
“Demand is expected to be 23.1 million b/d below year-ago levels. The recovery in 2H20 will be gradual; in December demand will still be down 2.7 million /d y-o-y.
If production does fall sharply, some oil goes into strategic stocks, and demand begins to recover, the second half of 2020 will see demand exceed supply. This will enable the market to start reducing the massive stock overhang that is building up in the first half of the year. Indeed, our current demand and supply estimates imply a stock draw of 4.7 million b/d in the second half.”
In the meantime, the global capital expenditure by exploration and production companies has been forecast to drop by about 32% to $335 billion in 2020. This will mark the lowest level in 13 years. Unfortunately, this will come with some negative implications as you can see in the quote below:
“This reduction of financial resources also undermines the ability of the oil industry to develop some of the technologies needed for clean energy transitions around the world.” the IEA added
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