The Nigerian government has projected a fiscal deficit of N13.08 trillion for 2025, marking a significant increase from the N9.18 trillion deficit projected for 2024. This budget shortfall, which is one of the largest on record, is expected to represent approximately 38% of the government’s revenues and 3.87% of the country’s GDP.
Breakdown of Revenue and Expenditure
According to the Medium-Term Expenditure Framework (MTEF), the projected revenue for Nigeria in 2025 is N34.8 trillion, with key revenue sources as follows:
- Oil Revenue: N19.6 trillion
- Non-Oil Taxes: N5.7 trillion
- Government-Owned Enterprises (GOEs): N2.87 trillion
- Independent Revenue: N3.6 trillion
- Other Sources: N4.8 trillion
In terms of expenditure, the government has set a target of N47.9 trillion, with the major categories being:
- Recurrent Expenditure (Non-Debt): N14.2 trillion
- Capital Expenditure: N16.4 trillion
- Debt Service: N15.38 trillion
- Other Expenditures: N2 trillion
This leaves a substantial fiscal gap of N13.08 trillion, which will be financed primarily through borrowing, including both domestic and external debt.
Drivers of the Deficit
The significant increase in the projected fiscal deficit for 2025 can be attributed to several factors:
- New Minimum Wage: The implementation of a higher minimum wage has added to government spending.
- Pension Obligations: Rising pension costs as well as consequential adjustments related to civil service pay are putting additional strain on the budget.
- Increased Debt Service Costs: The rising costs of servicing Nigeria’s growing public debt are a major factor driving up the fiscal deficit.
Borrowing to Finance the Deficit
To finance the N13.08 trillion deficit, the government plans to rely heavily on borrowing. The financing plan includes:
- Domestic Borrowing: N7.3 trillion
- External Borrowing: N1.8 trillion
- Multilateral and Bilateral Loans: N3.5 trillion (from sources like the IMF and World Bank)
- Privatization Proceeds: The balance will be financed through proceeds from the sale of government assets.
This total of N9.2 trillion in borrowing, combined with other sources, will help meet the government’s budget shortfall for 2025.
Historical Context and Rising Debt
Nigeria has faced persistent fiscal deficits in recent years, as government revenues continue to lag behind expenditures. In 2023, the total revenue was N12.84 trillion, 13% above the target, but the government still spent N23.04 trillion, resulting in a N9.66 trillion fiscal deficit. To bridge this gap, Nigeria relied heavily on domestic borrowing, pushing its public debt to N87.3 trillion by the end of 2023.
By the first 8 months of 2024, the government had already incurred a fiscal deficit of N4.2 trillion, with actual revenue of N12.7 trillion falling short of the pro-rata target of N13 trillion, while actual expenditure stood at N16.9 trillion compared to the pro-rata budget of N23.3 trillion.
If the government’s borrowing plans for 2025 are fully realized, Nigeria’s public debt could exceed N150 trillion by the end of 2025, assuming no major changes in the exchange rate.
Implications of Persistent Fiscal Deficits
Nigeria’s reliance on deficit financing is putting increasing pressure on the country’s fiscal health, and several challenges are emerging as a result:
- Public Debt Growth: With the additional N9.2 trillion in borrowing for 2025, Nigeria’s debt burden is likely to continue rising, which could lead to a debt trap unless structural reforms are introduced to boost revenues and control spending.
- Debt Servicing Costs: As Nigeria’s debt grows, so does the cost of servicing it. The government has allocated N15.38 trillion in 2025 for debt servicing alone, which is a substantial portion of its total budget. This eats into resources that could be directed toward development projects.
- Currency Depreciation: The fiscal deficit, especially when financed by external borrowing, exerts upward pressure on foreign exchange demand, which can lead to further depreciation of the naira. This, in turn, increases inflationary pressures and the cost of imported goods.
- Interest Rates: Persistent deficits and increased borrowing could drive up interest rates, making borrowing more expensive for both the government and private sector. This could stifle private investment and economic growth in the long run.
Efforts to Boost Revenues
To address the chronic fiscal imbalance, the Nigerian government is banking on tax reforms and improved tax compliance as key strategies to boost revenues. The Taiwo Oyedele-led reforms are expected to enhance tax collection and reduce the country’s reliance on oil revenues, which have been volatile in recent years.
Furthermore, the government is exploring automation in tax administration to enhance efficiency and compliance, as well as tax incentives to stimulate non-oil sectors.
While the Nigerian government’s fiscal plans for 2025 demonstrate a strong commitment to financing essential development projects and meeting key obligations, the rising fiscal deficit remains a major challenge. The combination of increased debt, rising debt servicing costs, and revenue shortfalls could have significant implications for the country’s economic stability, exchange rates, and future growth prospects.
The government will need to implement bold fiscal and economic reforms to reverse the trend of persistent deficits and put the nation on a more sustainable path in the medium to long term. Without substantial improvements in revenue generation and debt management, Nigeria’s fiscal outlook could continue to worsen, placing further strain on the country’s economic development.
