The implementation of Nigeria’s newly approved N70,000 minimum wage and 2024 supplementary budgets may face significant challenges due to falling crude oil prices and looming fears of a recession in the United States, the world’s largest economy.
Recent job data from the U.S. reported just 114,000 new positions, well below the expected 175,000, while unemployment rose to 4.3% from 4.1%. These statistics have heightened concerns about a potential U.S. economic downturn. Global stock markets, including those in Asia, Europe, and the U.S., have shown declines in response to these developments, with Japan’s Nikkei 225 seeing a 12% drop—its largest since 1987.
Nigeria exported goods worth N1.31 trillion to the U.S. in the first quarter of 2024, including N1.21 trillion in crude oil. A U.S. recession could reduce demand for crude oil, a critical industrial input, leaving Nigeria with unsold inventories and reduced revenue.
Crude oil prices have fallen by 7.6%, dropping from $82.77 per barrel on July 22 to $76.49 per barrel on August 5, according to data from OPEC and Business Insider. This decline places current prices below the 2024 budget benchmark of $77.96 per barrel. With production at 1.7 million barrels per day—slightly below the 2024 budget estimate of 1.78 million barrels per day—Nigeria faces reduced earnings from crude oil sales, which fund 40% of government budgets.
The ripple effects of declining crude oil revenue could hinder both federal and state governments’ ability to implement budgeted projects and meet the obligations of the new minimum wage. Senior analyst Vahyala Kwaga of Budgit Foundation warns, “A noticeable drop in crude prices will result in lower allocations for states, potentially affecting their ability to cover recurrent expenditures.”
States heavily reliant on personnel costs are at higher risk of struggling with the new wage implementation. Rivers, Oyo, Osun, Nasarawa, and Kogi are among those with the highest ratios of personnel costs to total expenditures, while Lagos, Imo, Zamfara, Kaduna, and Ebonyi show greater capacity to sustain wage increases due to favorable financial indicators.
Nigeria’s debt servicing costs, which reached $2.19 billion from January to May 2024, add further pressure to state and federal budgets. Analysts have highlighted that if crude oil prices continue to decline, most states may struggle to pay the new minimum wage, impacting essential public services and economic stability.
