…Higher oil prices fail to deliver expected revenue
The federal government earned N5.08 trillion in revenue in the first quarter of 2026, falling 44.93 percent short of its prorated target of N9.22 trillion, despite crude oil prices trading above the national budget benchmark.
The shortfall highlighted in the government’s 2026 first quarter budget implementation report shows the gap between favourable global oil prices and the government’s ability to convert them into revenue, with below-target crude production and weak non-oil collections limiting inflows.
Crude oil averaged $83 per barrel during the quarter, 27.99 percent above the 2026 budget benchmark of $64.85.
However, production averaged 1.55 million barrels per day, 15.76 percent below the budget assumption of 1.84 million barrels per day.
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Production shortfall undermines oil windfall
The production gap weakened the benefit of higher oil prices. Gross oil revenue stood at N2.97 trillion, against a prorated target of N9.33 trillion, representing a shortfall of N6.36 trillion, or 68.20 percent.
The report identified persistent operational and security challenges in the oil sector, noting that “crude oil theft, pipeline vandalism, and security challenges” were contributing to production declines and supply disruptions.
It also cited underinvestment in modern technology and infrastructure, corruption and regulatory uncertainties.
The weakness was visible across major oil revenue streams. Crude oil and gas sales generated N180.05 billion, 69.23 percent below the quarterly estimate of N585.22 billion.
Petroleum profit and gas taxes brought in N1.34 trillion, missing the N5.98 trillion target by 77.52 percent, while royalties amounted to N1.53 trillion, 43.51 percent below projection.
Non-oil taxes offer limited relief
The report’s assessment shows that higher prices have not translated into stronger public revenue. It observed that “stronger GDP growth, a higher international oil price and improved external indicators had not yet translated into commensurate revenue performance.”
Non-oil revenue offered some support but was not enough to close the gap. Gross non-oil revenue reached N4.91 trillion, compared with a quarterly target of N7.26 trillion, leaving a shortfall of N2.35 trillion, or 32.34 percent.
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Value Added Tax and Company Income Tax recorded year-on-year growth of 17.06 percent and 23.68 percent respectively. Customs revenue, however, declined by 9.23 percent compared with the corresponding period of 2025.
The figures suggest that while some tax categories are improving, the government is still struggling to collect enough revenue to meet its spending commitments.
The pressure is particularly significant for a budget that depends on stronger domestic revenue mobilisation to reduce reliance on borrowing.
Debt service takes a heavier toll
The fiscal position was further strained by debt servicing. The Federal Government spent N4.63 trillion on debt service in the first quarter, exceeding its prorated target of N3.88 trillion by 19.27 percent.
The debt service obligation is equally close to the entire revenue recorded in the first three months of the year, with only a shortfall of N0.45 trillion, leaving limited room for social spending.
The report warned that “the elevated debt-service burden continues to constrain the resources available for capital investment and social and economic programmes,” reinforcing the need to improve revenue mobilisation and manage liabilities prudently.
The government recorded a fiscal deficit of N4.69 trillion during the quarter, financed largely through domestic borrowing, alongside project-tied multilateral and bilateral loans and privatisation proceeds.
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Lower revenue keeps capital projects on hold
Capital budget implementation also remained constrained due to limited revenues. Releases for the 2026 capital budgets of ministries, departments and agencies had not commenced by March 31, as the utilisation period for 2025 capital releases had been extended to December 31, 2026.
This means the revenue weakness is unfolding alongside delays in the release of funds for planned government projects, raising questions about the pace of budget execution and the availability of resources for infrastructure and other public investment.
Revenue mobilisation becomes urgent
The first-quarter figures show that a higher oil price alone cannot guarantee stronger government finances when production remains below target and other revenue sources also underperform.
Without a more reliable flow of receipts, the government’s capacity to finance its expenditure plans without increasing borrowing will remain under pressure.
Wasiu Alli is a business, economics cum data journalist with strong expertise covering macro trends, capital markets, government policies, corporate earnings and comparative economics analysis. Alli turns raw data into trends that not only tells compelling stories but nudges investors to make valued and informed decisions. He’s an alumnus of Lagos State University and trained at Lagos Business School. He formerly heads the Companies and Markets desk at BusinessDay where he writes and supervises the production of well researched articles on earnings updates, corporate sectoral comparisons, market intelligence as well as interviews with C-suite executives.
