FG’s 2026 budget seen as more realistic, but debt raises concerns

Economists and policy analysts have cautiously endorsed the federal government’s proposed 2026 budget, describing it as more realistic than previous fiscal plans, even as concerns linger over rising debt servicing costs.

The endorsement follows the approval of the Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) by the Federal Executive Council (FEC) on Wednesday, setting the stage for what analysts see as a more grounded fiscal outlook.

The N54.43 trillion spending envelope is anchored on a conservative oil price benchmark of $64.85 per barrel and an exchange rate estimate of N1,512 to the dollar – assumptions that experts believe better align with current economic realities.

Key projections include: N34.33 trillion in total revenue, and a gross domestic product (GDP) growth rate of 4.68 percent. It also incorporates two oil production targets – an ambitious 2.06 million barrels per day and a lower 1.80mbpd used for budgeting purposes.

Analysts say the approach signals a more cautious and pragmatic orientation compared with past budgets, which often relied on overambitious assumptions.

How experts feel

Speaking to BusinessDay, Vahyala Kwaga, deputy country director of BudgIT, said the medium-term expenditure framework shows signs of more modest and realistic assumptions compared with previous fiscal years.

He noted that the implementation of new tax laws could improve revenue collection but cautioned that the nominal GDP projection of N690 trillion remains ambitious.

“The cost of a barrel of crude oil was pegged at $64.5. The minister was on record to have said that the federal government is aiming to take more reasonable assumptions in terms of the projection, which I think is also a fair assumption.

“However, the gross domestic product projections seem to be somewhat overly optimistic. I think we are around N350 trillion to N360 trillion GDP for 2025. So, expecting it to double to N690 trillion 2026, I’m not really sure because GDP requires a lot of interventions in a wide number of sectors,” Kwaga said.

Other experts also agree that while the 2026 budget reflects a more realistic and conservative approach, its success will depend on effective implementation, especially in debt management, revenue collection, and diversification of foreign exchange sources.

They caution that external shocks, political disruptions or revenue shortfall could undermine the plan, emphasising that the assumptions underpinning the budget must be met to achieve tangible economic outcomes.

According to Muda Yusuf, CEO, Centre for Promotion of Private Enterprises (CPPE), the oil price assumption is central to revenue generation and overall budget feasibility.

“Now, the point I am making is that our assumption on oil is very critical for revenue production. Now, for this year, you can see that it is much more conservative. I think they have also realised that assumptions need to be realistic, otherwise, you have a blue tape budget that you cannot fund,” he said.

Yusuf added that the GDP growth rate projected at 4.68 percent is “realistic even though a bit aspirational,” stressing that revenue, not GDP figures, is the key determinant of successful budget execution.

“But what is more important in all these projections are around what you want to spend and how you intend to fund it. That is the most critical assumption. You don’t use the GDP to fund the budget; you use the revenue. So, having a realistic revenue assumption is more critical,” he said.

On the impact of the tax reform expected to kick in by January 2026, Yusuf said the new policies could enhance revenue generation and improve business confidence. “I believe that with the more conservative outlook, especially with the tax reform, it’s also likely to bring in more revenue.

“The business confidence is improving. So, with that, we expect that if we don’t have any major disruption in 2026, like election or pre-election problems, then we are likely to have a much more realistic budget in 2026,” he further said.

However, he expressed concern about the high debt servicing projection of N15.91 trillion, cautioning that it could consume a significant portion of government funds if revenue falls short.

“The other point is – which I think we also still continue to worry about – is the debt servicing, which from what I can see, is over N15 trillion. If your revenue is just N34.33 trillion and the debt service component is N15.9 trillion, that’s really a lot, almost half of the revenue. This means that if anything happens to revenue, the percentage, that percentage will go up,” he said.

On his own part, Mojeed Dahiru, public affairs analyst, stressed the need for the government to reduce reliance on oil revenues and diversify sources of foreign exchange (FX). He noted that FX earnings underpin economic activity, which in turn generates taxes, levies, and tariffs.

“What I think is that for many years we’ve been talking about diversification of our economy. But the real diversification we’ve been talking about is diversification of sources of foreign exchange,” Dahiru said.

He explained that Nigeria’s budget is almost always tied to crude oil production and international oil prices, which the country cannot fully control, making implementation vulnerable to external shocks.

“If you observe, our budget is almost always hedged on crude oil production and the price of crude in the international market. And since we don’t have control over both production and the pricing, our budgets, more often than not, run into trouble because when something happens within the international market space in terms of reduction in prices. In such situations, our budgets run into trouble and we are unable to fund them,” he said.

He added that sustainable revenue generation will only be possible if the government invests in export-competitive enterprises capable of earning foreign exchange.

“What we should be looking at now is how to diversify the government’s sources of foreign exchange. Make no mistake, our economy is already diversified. So, when we set the agenda, it shouldn’t revolve solely around oil revenues, or what is classified as oil revenues in fiscal documents -taxes, levies, duties, tariffs, and so on. Even those depend heavily on foreign earnings.

“What we should do is to actually focus on diversifying the source of foreign exchange. And the only way that can be done is for the federal government to make investments, to establish export competitive enterprises, where it can draw revenues from the global international market. Until that is done, we keep having this flawed pattern that ends up not enabling the government to fully fund its fiscal plans from year to year. So, the focus for me should be how to diversify the source of foreign exchange,” he said.