April 13, 2021

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How Nigeria’s overdependence on oil revenue increases its debt profile

6 min read

Nigeria’s Finance Minister, Zainab Ahmed, in 2019 acknowledged the country had a revenue problem. Mrs Ahmed made the comment while defending the 2020 budget before the National Assembly, where she sought approval for a loan to finance a ₦4.97 trillion deficit in the budget.

Some argued that the minister’s statement was a denial of the huge debt problem the government grappled with, and that it was only meant to play down the unhealthy loan habits and wasteful spending of the government. Yet, some believe the minister’s position that our dependence on declining oil revenue is the problem, not debts in itself.

Debates as this begs the question: Is Nigeria’s revenue woe owing to its limited sources of revenue? History suggests no. In times past, the country’s economy thrived relying on several sources of revenue generation. The advent of crude oil, however, saw the gradual neglect of other sectors as revenue sources for the country.

While the government consistently speaks of reforms to halt the country’s over-dependence on oil revenue, the budgets show the government has its eyes fixated still on oil revenue for survival. The federal government indicated in its budgets from 2010 to 2014 that it expects over 60 per cent of the revenue that will fund its spending to come from oil sales. While it budgeted lower in 2015 and 2016, it has since resumed an increasing reliance on oil to fund its budgets, from 51 per cent in 2017 to 66 per cent in 2019.


Though Nigeria’s budgets are made in expectations of high oil revenue, records show that the country has consistently not been able to generate its proposed target of oil revenue annually.


Why is Nigeria’s Oil Revenue Falling when Crude is sold at a higher price?
As projected from the Federal budgets, the selling price of crude oil indicates how much revenue Nigeria intends to generate from crude oil for the year. However, the final selling price is not determined by Nigeria, the seller, but out in the international oil market.

Fortunately for the country, data from the Budget Office and CBN shows that crude oil’s final average selling price was higher than the projected price in the budget, except in 2015, and ordinarily, these would have meant higher revenue from oil in all the other years than the oil revenue budgeted.

Prices of Crude Oil Annually

Year Projected Price Per Barrel ($) Average Annual Price Per Barrel ($) Difference in Price ($)
2010 67 81.45 14.45
2011 75 115.18 40.18
2012 72 113.34 41.34
2013 79 110.95 31.95
2014 77.5 98.88 21.38
2015 53 52.85 -0.15
2016 38 46.07 8.07
2017 44.5 54.32 9.82
2018 51 72.58 21.58
2019 60 65.49 5.49

Source: Budget Office of the Federation and CBN

Yet, for the higher selling price of crude to translate to higher revenue, the country must produce at least the budgeted quantity as well. As a practice, the country in her annual budget proposes an amount to be sold to generate the predetermined revenue. This quantity is either met or exceeded for the period. Data accessed from Nigeria’s budget office shows that the government was unable to meet its proposed production target annually, except in 2011.

Quantity of Crude Oil Produced Daily in Nigeria

Year MBPD Projected MBPR Actual Difference in Production (MBPD)
2011 2.3 2.33 0.03
2012 2.48 2.2 -0.28
2013 2.52 2.15 -0.37
2014 2.39 2.12 -0.27
2015 2.28 2.19 -0.09
2016 2.2 1.76 -0.44
2017 2.2 1.89 -0.31
2018 2.3 1.93 -0.37
2019 2.3 2.04 -0.26

Although, on the average, there were shortfalls in the actual production of crude oil daily, there was a higher degree of increase in the product’s actual selling price. Thus, due to the favourable international price of crude oil, there was supposed to be a net increase in daily revenue in all the years, except 2016, Dataphyte’s analysis shows. 

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Year Actual average Revenue per day ($million)

(Actual price*Actual quantity)


Budgeted revenue per day ($million)

(Budgeted price*budgeted quantity)


Change in Average Revenue per day ($million)



2011 189.77 154.10 35.67
2012 253.40 186.00 67.40
2013 243.67 181.44 62.23
2014 235.22 188.81 46.41
2015 216.55 176.70 39.85
2016 93.02 116.60 -23.58
2017 87.07 83.60 3.47
2018 104.84 102.35 2.49
2019 148.07 117.30 30.77

Surprisingly, while Nigeria has been gaining millions of dollars daily in crude sales more than it budgeted for, the country has been receiving lower oil sales returns from its national oil business handler, NNPC.

The NNPC’s published accounts reveal how its management unilaterally deducts substantial amounts from the oil revenue due for the federation account as costs, before handing the balance it so determines to the Federation Account. These defrayed costs include under-recovery costs (oil subsidy), product losses, pipeline management costs, besides others.

This shows that if NNPC reduces its business cost, the expected budgeted revenue can be achieved and even surpassed. Moreover, data indicates that NNPC is one of the state-owned oil companies operating at loss compared to its peers in other countries. In 2019, when other state owned oil companies declared massive profits in hundreds of billions of dollars, NNPC declared a loss of $0.52 billion, that is, 520 million dollars.


Thus, even if the country meets its expected oil production quota and sells crude at favourable international prices, all these may not readily translate into the expected values of oil revenue, until the country, through the NNPC and its subsidiaries, manages its oil business in an efficient manner.

Decreasing Oil Revenue and Increasing Debt Profile

Nigeria’s budget records over the years show that the federal government has been running all its budgets on deficits. A deficit budget is made when the government expects that its revenue in the new year will not be sufficient to fund its planned spendings. So, the government usually states that it intends to borrow from local and international lenders to fund the deficit, in addition to selling off some of the country’s assets to get money to spend in the present time.

Source: Budget Office of the Federation, Dataphyte Research 


However, in recent times, due to decreasing revenue from NNPC’s inefficient management of oil proceeds, and shortfalls from other non-oil revenue sources, the government has actually been experiencing a deficit more than they planned in the budget. This means, while revenue was decreasing more than planned, the government was borrowing much more than they planned. Dataphyte’s analysis showed a strong positive relationship between decreases in oil revenues and increases in budget deficits, with a 0.83 correlation coefficient.

Year Oil Revenue budgeted (N trillion)


Oil Revenue Actual (N trillion)


Budgeted Deficit (N trillion)


Actual Deficit (N trillion)


Decrease in Oil Revenue (N trillion)


Increase in Deficit (N trillion)


2010 4.264 2.613 1.49 1.09 1.651 -0.41
2011 4.839 3.494 1.14 1.74 1.345 0.60
2012 4.008 3.639 1.14 1.00 0.369 -0.14
2013 4.855 4.116 0.89 1.06 0.739 0.17
2014 4.36 4.083 0.99 0.88 0.277 -0.11
2015 3.377 2.512 1.62 1.53 0.865 -0.09
2016 1.479

Source: Budget Office of the Federation, Dataphyte Research



Furthermore, Dataphyte’s analysis found a 0.71 correlation between Nigeria’s decreasing oil revenue and increasing budget deficits between 2010 and 2019. This means there is also a positive relationship between the degree of decrease in Nigeria’s oil revenue and the degree of increase in the country’s debt burden.

Although it may not be conclusive to say that this decrease in oil revenue is the main cause of the country’s growing debts, Nigeria’s ten year trend (2010-2019) shows strong links between the government’s revenue and its loan habits.

Lessons Learnt

An overhaul of the NNPC’s operations is inevitable to position it for efficient and competitive business. This will enable increased revenues accruable to the federation accounts and minimizes revenue leakages.

Moreso, Nigeria has the potential of improving her revenue position if it looks beyond oil to other non-oil taxes. As it stands, the tax system does not cover the entire labour force, as less than 30% pay taxes, according to a BBC report. This situation is compounded by the fact that not less than 65% of her working population works in the informal sector. This accounts for her inability to meet the required standard of 15% tax revenue to GDP, and reporting 6.1% tax revenue in 2019.

The Medium-Term Economic Framework (MTEF) may also incorporate expenditure benchmarks, rather than identifying only revenue benchmarks. This will regulate government expenditure, which will in turn improve the budget deficit situation, and by extension, reduce the country’s debt burden to the overall benefit of the citizenry.

Support for this report was provided by the Premium Times Centre for Investigative Journalism (PTCIJ) through its Natural Resource and Extractive Programme..

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