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How inability to meet OPEC quota, subsidy payments, oil theft increases Nigeria’s economic risks




NIGERIA’s current fiscal deficit economic risks are widening as federal government’s inability to meet the Organisation of Petroleum Producing Countries (OPEC) oil production quota of 1.7 million remains a major concern.

According to the Nigerian National Petroleum Company Limited (NNPC), the government does less than 1.5 million barrels per day of its crude production qouta. The shortfall has seen it resort to borrowing to plug budget deficits, since oil is still the mainstay of the economy.

The government also faces the additional problems of sustaining subsidy payments and massive oil theft currently ravaging the country.

These situations have seen Nigerian government resorting to borrowing, despite options in securitisation of debts and sale of dormant assets.

Despite dwindling revenue resources, oil remains Nigeria’s economic mainstay, but it has been badly managed. This poor management is evident in Nigeria’s refineries posting perennial losses.

Expressing concerns on this development, the World Bank, in its bi-annual report, stated, “Risk remains high on increasing fuel subsidies, which could weigh heavily on public finance and pose debt sustainability concerns.”

The report further noted that as Nigeria continued to rely on oil as the mainstay of its economy, oil-related revenues would contribute 40 to 60 per cent of fiscal revenue, while oil and gas would account for 80 to 90 per cent of total exports.

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The World Bank also noted that weak oil production below the OPEC quota was holding back Nigeria’s overall recovery process in 2022.

Amid these concerns, the country’s National Assembly recently approved N4 trillion as requested by President Muhammadu Buhari to take care of fuel subsidy payments in 2022.

The approval followed criticisms by economic analysts over unsustainability of subsidy, and opacity they identified as characterising the programme.

This situation has seen the economy remain fragile and showed signs of weak growth.

Commenting on these concerns, the Chief Executive Officer of Centre for the Promotion of African Economies, Muda Yusuf, told THE ICIR that the economy was still vulnerable and largely affected by oil price volatility.

Yusuf urged the government to prioritise economic diversification and wealth creation.

He said, “The economy is still vulnerable to fluctuations in the international oil prices with ripple effects on exchange rate stability, reserve accretion, investor confidence, inflationary pressure, budget performance, business sustainability, and citizens welfare.

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Speaking on possible solutions to the growing economic risks, he said, “The government must ensure a sustainable mix of policies to stem the intense inflationary pressures on the economy.They must also ensure effective coordination between the fiscal and monetary policies.

He further called on the government to facilitate synergy between key economic and investment ministries and agencies to ensure policy and regulatory coherence, and infuse a general equilibrium mindset in the policy making processes to ensure a broad comprehension of the impact of economic policies.

Yusuf also called on the government to promote the reduction of fiscal deficit monetisation because of the profound inflationary outcomes.

Also in his submission, a social critic and senior lecturer with the Baze University, Abuja, Sam Amadi, told THE ICIR that Nigeria must sustain meaningful economic growth through improved productivity.

Amadi said, “With or without borrowing, the Nigerian economy is almost ruined. We need to work extra hard and smart to restart sustained and meaningful economic growth.”

He added that more borrowing made Nigeria’s economic situation worse as Nigeria had an acute productivity crisis.

“Its debt servicing to expenditure is very bad. We are also facing acute revenue crunch. So extra borrowing compounds the economic crisis in the short and medium terms because Nigeria’s productivity is not increasing,” Amadi said.

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The government had earlier in the month raised an alarm over the rising rate of crude oil theft in the Niger Delta, disclosing that about $3.27 billion worth of oil had been lost to vandalism and theft in the past 14 months.

“As we speak now, there is a massive disruption to our operations as a result of activities of vandals and criminals along our pipelines in the Niger Delta area. This has brought down production to levels as low as we have never seen,” the Group Managing Director of the NNPC, Mele Kyari, said.

“Today we are producing less than 1.5 million barrels per day, simply because some criminals decided that they should have an infectious environment. And that clearly is the biggest form of business disruption that we are facing today,” Kyari added.

The government also said high-level cases of oil theft had become a threat to the country’s corporate and economic existence, with the industry now thinking of transporting crude oil from fields to export terminals by trucks.

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