N28.1trn Fiscal Deficit, Debt Servicing Burden May Dwarf Performance

LAGOS – As lofty as the provisions in the 2025 budget may look, a random look at the budget has shown that a fiscal deficit of N13.8 trillion and debt service of N14.3 trillion both have the potential to limit the performance of the budget.

The Senate, on Thursday, passed the 2025 budget with an increase of about N750 billion.

The increment comes about a week after President Bola Tinubu requested an upward review of the budget from the initial proposal of N49.7 trillion to N54.2 trillion.

The senators supported passage of the budget after they reviewed a report  presented by Adeola Olamilekan, Chairman of the Senate Commit­tee on Appropriations.

Sen. Olamilekan, while pre­senting the report, recommended that N3.6 trillion be approved for statutory transfers; N14.3 trillion for debt service, N23.9 trillion for capital expenditure, and N13.8 trillion for fiscal deficit.

This increase comes about a week after President Tinubu re­quested an upward budget revi­sion by N4.5 trillion. He increased it from its initial proposal of N49.7 trillion to N54.2 trillion.

The Federal Government of Nigeria has projected a fiscal deficit of N13.08 trillion in 2025, an increase from the estimated N9.18 trillion for 2024 and one of the largest on record.

This projected deficit rep­resents approximately 38 percent of the Federal Government’s revenues and 3.87 percent of the estimated GDP.

The largest fiscal deficit based on the MTEF was N11.6 trillion in 2023 while the government has estimated a fiscal deficit of N10.2 trillion for the period 2022-2026 MTEF.

The Medium-Term Expen­diture Framework (MTEF) at­tributes this increase to factors such as the new minimum wage, pension obligations, consequen­tial adjustments, and rising debt service costs.

Daily Independent gathered that the 2025 budget made a new provision of $200 million, which is equivalent to N300 billion, to fill the gap created by the United States government’s suspension of intervention in the Nigerian health sector to proactively ad­dress the health challenges cur­rently being experienced by some countries.

Similarly, additional funds were allocated to some agencies, namely the Independent Nation­al Electoral Commission (INEC), Nigerian Financial Intelligence Unit (NFIU), the Economic and Financial Crimes Commission (EFCC), Independent Corrupt Practices and other related offenc­es Commission (ICPC), National Judicial Council (NJC), and the National Drug Law Enforcement Agency (NDLEA).

Chief Executive Officer of CFG Advisory, Tilewa Adebajo, in an interview, highlighted the disconnect between the projec­tions and Nigeria’s fiscal reality.

He questioned the feasibili­ty of further expansion, given the fiscal deficit’s rise from N13 trillion in 2023 to a projected N18 trillion in 2024.

On the exchange rate bench­mark, Adebajo warned that N1,400 to the dollar was overly optimistic, saying inflationary pressure and deficit financing could push rates to N1,800 or be­yond.

He said: “The real issue is whether we can afford what we’re budgeting for. Revenues for 2024 were projected at N17 trillion, but we consistently im­plemented only half the budget due to shortfalls. If you cannot fund your plans, you carry defi­cits forward, a cycle we’ve seen repeatedly. The budget’s effective­ness depends on realistic revenue projections.

“For example, the finance minister mentioned raising $2.2 billion in external debt financing, $1.7 billion from Eurobonds, and $500 million from the Sukuh pro­gramme. Yet, domestic debt has ballooned from N50 trillion to N70 trillion in just one year.

“Combined with external debt nearing $45 billion, debt sus­tainability is a concern. Despite recent reforms, like fuel subsidy removal and foreign exchange liberalisation, the revenue in­creases expected from these mea­sures haven’t materialised. The economy is still in stagflation. We need to address the issue of fuel pricing.

“While development commis­sions serve critical needs, you cannot sustainably budget for ini­tiatives you cannot finance. If you continue to do that, you are going to continue carrying deficits. The government must demonstrate the impact of these allocations. For example, oil production was targeted at 1.8 million barrels per day, yet this is not reflected in foreign reserves or the Feder­ation Account. Transparency is lacking.”

To ease debt pressures, Adeba­jo proposed selling joint venture oil assets to raise $50 billion.

He said: “If the government pursued balance sheet restructur­ing, such as selling JV oil assets, it could raise $50 billion to reduce debt and boost efficiency.”

Key components of the bud­get, including an oil price target of $75 per barrel and production pegged at 2.06mbpd face similar scepticism.

In her contribution, Head of Research at Parthian Partners, Olufunmilola Adebowale, noted that although the budget rep­resents a 74.18 percent nominal increase, its real value has de­clined by 23.22 percent in dollar terms due to inflation and curren­cy depreciation.

She said: “The government aims to generate over N30 trillion in revenue, underpinned by an oil price target of $75 per barrel and a production target of 2.06 million barrels per day (mbpd). While the oil price target is rea­sonable, the production target of 2.06mbpd appears overly op­timistic.

“OPEC reported Nigeria’s oil production reached just 1.4mbpd in October, well below the target. Although production is expected to rise due to efforts to combat theft and pipeline vandalism, achieving the 2mbpd target in the short term seems unlikely.

“The government’s ability to manage its debt will be crucial in determining the space available for growth-enhancing spending. Excessive borrowing without a clear repayment plan could fur­ther exacerbate the nation’s debt burden.”

On inflation and exchange rates, she noted that rising infla­tion and currency depreciation could erode the purchasing pow­er of the budget, undermining its effectiveness, particularly for essential imports and capital ex­penditure.

Head of Financial Institu­tions Ratings at Agusto & Co., Ayokunle Olubunmi, argued that GDP growth projections of 4.6 percent appeared optimistic, given recent performance and current policies.

“To assess the potential of the budget is to look at the as­sumptions of the budget. The first one has to be the price of all our $75 that they are projecting and based on what’s happening now, it seems as if it is realistic, but the truth of the matter is that a lot of things that will happen in the world market de­pends on the stance of Donald Trump.

“If he goes tough on the Mid­dle East, all prices might soar higher. Although he has men­tioned that he plans to reduce oil prices as part of the measures to reduce inflation in America. So, if it goes about that he might even increase more supply into the market, and the oil prices will crash. Based on that, $75 may be too high.

“In terms of crude oil pro­duction, they are projecting two million barrels per day. We can say this two million is realistic if they ramp it off. However, the main question is the 1.8 million barrels they claim, how verifiable is it? Because now, over the last couple of months, we’ve seen the NNPC working back on some of their statements.”