The federal government of Nigeria’s fiscal deficit surged to N4.53 trillion in the second quarter of 2024, up from N3.88 trillion in the previous quarter.
This is according to information contained in the Central Bank of Nigeria’s economic report for the second quarter of 2024, seen by Nairametrics.
In simple terms, a fiscal deficit happens when a government’s spending exceeds its revenue from taxes and other sources. It means the government is spending more money than it’s bringing in.
To cover this gap, the government often borrows money, which can lead to an increase in public debt.
According to the report, while the deficit saw a notable rise, the federal government’s revenue remittance increased only marginally to N2.3 trillion.
This figure represents a 57.66% increase from the first quarter but still falls 52.49% short of the target for the period, prompting a heavy reliance on deficit financing.
Interest Rate Drives Up Government Expenditure
- The report also highlights that while the government gains from foreign exchange revenue due to naira devaluation, its overall expenditure expanded significantly to N6.83 trillion, driven largely by high-interest payments on loans and other financial obligations.
- This marks a 27.79% increase from the previous quarter, with recurrent expenditures dominating the spending.
- The data shows that 89.7% of the federal government’s expenditure was on recurrent costs, while capital and transfer payments accounted for just 3.66% and 6.37%, respectively.
Growing concerns over rising deficit
There have been growing concerns over the government’s rising deficit, which pushes the federal government to rely on loans to meet its obligations and manage debt service.
- This dependence raises fiscal risks, especially amid rising debt costs.
- Continuous shortfalls in revenue projections each quarter indicate that the deficit may keep expanding, worsened by high interest rates and inflationary pressures.
- This trend points to a persistent gap in the government’s finances.
In the past, the federal government used the Central Bank’s Ways and Means facility to cover revenue shortfalls.
However, the Tinubu administration announced an end to this approach, aiming to curb prior misuse and adopt a more disciplined fiscal strategy.
What you should know
- During the last Monetary Policy Committee (MPC) meeting convened by the Central Bank of Nigeria (CBN) in September, committee members expressed significant concern over the rising fiscal deficit.
- They noted the growing pressure this deficit imposes on the overall economy, especially in the face of Nigeria’s current economic climate marked by high inflation and foreign exchange challenges.
- Members emphasized the risks associated with such a deficit, pointing out that persistent fiscal imbalance could strain national resources and limit the government’s ability to make strategic economic investments necessary for sustainable growth.
- However, MPC members acknowledged the commitment of the fiscal authorities to avoid using monetary financing as a solution, specifically by steering clear of the Ways and Means facility.
- This facility, typically utilized for emergency financing, involves the central bank lending directly to the government.
However, such a method often leads to an increase in the money supply, which could further fuel inflationary pressures.