The International Monetary Fund (IMF) has stated that Nigeria’s budget deficit would increase beyond the projected figure for 2024 due to implicit fuel and electricity subsidy payments and increased interest costs on debt.
This is contained in the Fund’s staff report on Nigeria, where it stated that the suspension of excise duties in the Medium Term Expenditure Framework (MTEF) and lower revenues from oil and gas sales as part of the drivers of the projected increase in budget deficit.
According to the report, the federal government would require a supplementary budget to meet its plans on minimum wage increase later in the year which would most likely exceed the figure projected in the 2024 budget.
It stated, “Staff projects a higher fiscal deficit than anticipated in the 2024 budget, but broadly unchanged from 2023. The drivers are: (i) lower oil/gas revenue projections, reflecting IMF oil price forecasts but incorporating recent production gains; (ii) higher implicit fuel and electricity subsidies; (iii) continued suspension of excise measures included in the MTEF; and (iv) higher interest costs.”
“In addition, the authorities noted that a supplementary budget may be needed to accommodate the outcome of the ongoing wage structure negotiations which may exceed what they had included in the 2024 budget.”
Furthermore, the IMF projected capital spending to be lower than planned, based on past results, leading to a projected Federal Government of Nigeria (FGN) deficit of 4.5% of GDP in 2024, compared to the budget target of 3.4% of GDP.
What you should know
The federal government in the 2024 appropriation projected a budget deficit of N9.18 trillion which represents a 33.5% decline in the fiscal deficit when compared to the N13.78 trillion recorded in 2023. Contrary to previous years, the federal government did not make any appropriation for fuel subsidies in 2024.
- However, players and analysts in the oil and gas industry have confirmed recent payments in fuel subsidies on the back of the significant depreciation of the naira in 2024. The CEO of Rainoil, Gabriel Ogbechie had earlier stated that the federal government now pays about N600 billion monthly on fuel subsidy.
- Beyond that, the federal government partly returned to cost-reflective pricing for electricity tariffs in April with the over 200% hike in electricity tariff for Band A customers who comprise about 15% of the total electricity customers across the country.
- The IMF had earlier warned that non-cost reflective prices in electricity tariffs and fuel could cost Nigeria around 3% of the Gross Domestic Product (GDP) in 2024.
