The Tinubu administration in Nigeria has proposed a combined fiscal deficit of N30.6 trillion for the years 2024, 2025, and 2026, according to the government’s medium-term expenditure framework (MTEF). This extensive deficit plan includes a proposed N9.04 trillion deficit for the 2024 budget, equivalent to 3.83% of GDP, which exceeds the 3% threshold stipulated in the Fiscal Responsibility Act (FRA) of 2007.
While the N9 trillion projected deficit for 2024 is significantly lower than the N11.6 trillion budgeted for in 2023 (5.18% of GDP), the government attributes the large deficit to the proposed salary review for federal workers, increased pension obligations, and higher debt service costs.
The government aims to reduce the deficit to under 3% of GDP in the “medium term,” although the budget proposal still projects fiscal deficits of 3.89% and 3.92% of revenue for 2025 and 2026, respectively.
Budget Plans
The government’s budget plans for the three years indicate budgets of N26 trillion, N27.5 trillion, and N29.4 trillion in 2024, 2025, and 2026, respectively. In terms of revenue, it targets N16.9 trillion, N17.3 trillion, and N17.89 trillion for the same years, leading to projected deficits of N9 trillion, N10.2 trillion, and N11.4 trillion.
The deficit will be primarily financed through domestic and external borrowings, with new loans of N7.8 trillion planned for 2023. This borrowing will consist of N6 trillion from domestic sources and N1.7 trillion from foreign sources. Privatization proceeds and multilateral project-tied loans are also expected to contribute to the financing.
This budget plan, with a combined fiscal deficit of N30.6 trillion over three years, continues the trend of budgetary deficits from the previous administration and raises concerns about revenue collection, debt sustainability, and fiscal performance.
Implications and Concerns
- Revenue Target Challenges: The government has consistently missed its revenue targets over the past eight years, raising concerns about its ability to generate the projected revenues to offset the deficits.
- Debt Sustainability: The proposed additional borrowing, potentially pushing Nigeria’s debt profile past N100 trillion, raises sustainability concerns, especially if revenue targets are consistently missed.
- Impact on Private Sector: Extensive domestic borrowing may crowd out the private sector, strain foreign reserves, and potentially lead to inflationary pressures and higher borrowing costs.
- Budgetary Expenditure: The nature of budgetary expenditure, especially on capital projects, will be crucial. Effective allocation to high-return investments can justify deficits.
- Performance Challenges: Given that the government has struggled to meet its budgetary expenditure targets in the past, it remains to be seen if these challenges can be addressed in the proposed plan.
- Debt Service Impact: The allocation of a significant portion of the budget to debt service raises concerns about the impact on overall government expenditure and potential effects on interest rates.
In summary, the proposed fiscal deficit in Nigeria’s budget plan poses significant concerns and raises questions about the government’s ability to generate revenue and manage its fiscal responsibilities effectively.
