Abuja — Nigeria, Africa’s top oil producer, will cut the size of its record 10.6 trillion naira ($34.6 billion) budget for 2020 because of a sharp decline in the price of crude, the finance minister said on Monday.
Global oil demand is set to contract this year for the first time in more than a decade as the coronavirus outbreak causes economic activity to stall, the International Energy Agency said on Monday. The downward revision came as oil prices dropped as much as a third after Saudi Arabia launched a bid for market share following the collapse of an output pact with Russia.
Crude oil sales make up around 90% of foreign exchange earnings in Nigeria. The 2020 budget, passed in December, was calculated assuming crude production of 2.18 million barrels a day at a price of $57 per barrel.
Benchmark Brent crude futures were down about 20% at slightly above $36 a barrel at 1722 GMT.
“There will be reduced revenue on the budget and it will mean cutting the size of the budget,” finance minister Zainab Ahmed told reporters at the presidential offices in the capital, Abuja, after a meeting with President Muhammadu Buhari.
She added that she would be part of a committee, also including the minister of state for petroleum, the head of state oil company NNPC and the central bank governor, that would determine the size of the budget cut in the coming days.
The minister of state for petroleum, Timipre Sylva, said Nigeria would increase its oil output, which stands at around 2 million barrels per day, but did not specify by how much.
Nigeria is still struggling to shake off a 2016 recession, which was caused by the oil price collapse of late 2014, with economic growth currently at around 2%.
The West African country, which has deep trade ties with China, has already felt the impact of the coronavirus due to disrupted supply chains.
Mathias Hindar, a sub-Saharan Africa analyst at consultancy Falanx Assynt, said persistently low oil prices would put pressure on the country’s “rapidly diminishing” foreign currency reserves and restrict funds for capital projects.
“We could see the government’s ability to protect the naira diminish, which could subsequently cause significant rises to inflation rates,” he said.
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