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% of the Federal Government’s revenues and 3.87% 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.
Key highlights
Revenue Targets: N34.8 trillion
- Oil Revenue: N19.6 trillion.
- Non-Oil Taxes: N5.7 trillion.
- Government-Owned Enterprises (GOEs): Net revenues of N2.87 trillion.
- Independent Revenue: N3.6 trillion.
- Other Sources: N4.8 trillion.
Expenditure Goals: N47.9 trillion
- Recurrent Expenditure (Non-Debt): N14.2 trillion.
- Aggregate Capital Expenditure: N16.4 trillion.
- Debt Service: N15.38 trillion.
- Other Expenditures: N2 trillion.
This leaves a substantial fiscal gap of N13.08 trillion, to be financed through borrowing and other deficit-financing measures.
Nigeria’s Fiscal Deficits
Nigeria has been running fiscal deficits for years as government revenues continue to lag expenditure.
- For example, in 2023 the FG total revenue was N12.84 trillion, 13% above the target.
- However, total expenditure stood at N23.04 trillion, representing 92.8% of the budgeted amount.
- The fiscal deficit of N9.66 trillion was financed primarily through domestic borrowing, increasing the public debt stock to N87.3 trillion by year-end.
- Budget analysis for the first 8 months of 2024 already shows a fiscal deficit of N4.2 trillion.
- During the period, actual revenue was N12.7 trillion compared to a pro-rata amount of N13 trillion while actual expenditure is N16.9 trillion versus N23.3 trillion in the pro-rata budget.
For 2025, the federal government is projecting a budget deficit of N13.08 trillion representing 3.87% of GDP.
This represents about 38% of total FGN revenues and 3.87% of the estimated GDP. The deficit is higher than the N9.18 trillion estimated for 2024.
- According to the MTEF, the deficit is due to the “increased new minimum wage, pension obligation, other consequential adjustments, and increased debt costs.”
- To finance this deficit, the government is estimating fresh domestic and external borrowing but will rely mostly on the former.
- It targets fresh domestic loans of N7.3 trillion and another N1.8 trillion in external financing bringing the total to N9.2 trillion.
- Another N3.5 trillion will come from multilateral (IMF/World Bank) and Bilateral projected loans, while the balance is from privatization proceeds.
The government also stated that it “aims to lower the deficit levels” to the threshold stipulated in the FRA 2025 within the medium term.
Concerns down the road
Nigeria’s government is banking on tax reforms, automation, and improved compliance to boost revenues.
- This is on the back of some of the tax reforms being pushed by the Taiwo Oyedele-led reforms which are expected to help boost government revenues.
- Nigeria’s reliance on deficit financing for its budget is likely to continue to increase its public debt which Nairametrics estimate at N135.8 trillion as of June 2024.
- With additional borrowing of N9.2 trillion targeted for 2025, Nigeria’s public debt could top N150 trillion by the end of 2025 without adjusting for the exchange rate.
In terms of exchange rates, Fiscal deficits can significantly influence exchange rates, primarily through their impact on government borrowing.
- Persistent deficits often lead to increased public borrowing, driving up interest rates and inflating debt servicing costs.
- Additionally, when financed through external borrowing, deficits increase demand for foreign currency, exerting pressure on exchange rates.
- Nigeria’s naira depreciation in recent years is partly linked to such fiscal dynamics, alongside structural economic issues.
