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Drop in Nigerian Oil Revenues Foreshadows Economic Downturn

The head of Nigeria's state-owned National Petroleum Corporation says the country's economy is expected to decline in the wake of falling oil prices and declining crude production.

Nigeria had projected its 2009 budget based on a benchmark price of crude oil of $45 per barrel per day and oil output of 2.3-million barrels per day. What is striking is that oil prices collapsed from almost $150 last year to the current price of about $50.

Nigeria relies heavily on oil and gas, which according to the World Bank accounts for more than 90 percent of export earnings and 85 percent of government revenues.

The Nigeria National Petroleum Corporation has announced a 50 percent shortfall in oil revenues this year, straining public finances in sub-Saharan Africa's second-biggest economy. Nigerian oil chief Mohammed Bakindo says the drop was precipitated by the slide in the price of crude.

"In terms of pricing, whereas in 2008, our crude strength averaged $97 per barrel, in the year 2009, as at January, the average basket is hovering around $43 a barrel," said Bakindo.

Bakindo said the decline in daily crude production from two-million barrels per day in 2008 to the current level of 1.6 million barrels per day, is taking a heavy toll on the economy. The NNPC group managing director observed that the slowdown in investment in oil and gas production, insecurity in the oil- producing Niger Delta and OPEC quotas are some of the key challenges facing the industry.

Africa's most populous nation is the world's eighth-largest crude oil exporter and its economic outlook has been clouded by falling energy prices, which have eaten into its earnings and risked depleting its foreign reserves. The local currency has fallen by about 25 percent against the dollar during the past few months.

Nigerian Senate Committee on Petroleum Chairman Lee Maeba says the situation calls for prudent use of public funds.

"That calls for prudent use of material, prudent use of money in the execution of projects," said Maeba.

Standard & Poor's says it has lowered Nigeria's ratings outlook to "negative" from "stable" as a result of the falling oil revenues.