The Federal Government of Nigeria has projected a fiscal deficit of N13.08 trillion for the year 2025, marking a significant increase from the estimated N9.18 trillion for 2024. This projected fiscal gap is one of the largest in the country’s history and is expected to represent 38% of the federal government’s revenues and approximately 3.87% of the estimated GDP.
Key Insights from the MTEF
The Medium-Term Expenditure Framework (MTEF) attributes the increase in the fiscal deficit to several key factors:
- Rising Debt Service Costs
- New Minimum Wage Obligations
- Pension and Other Consequential Adjustments
Budget Breakdown
Revenue Targets for 2025:
- 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
Total Revenue Target: N34.8 trillion
Expenditure Goals for 2025:
- Recurrent Expenditure (Non-Debt): N14.2 trillion
- Capital Expenditure: N16.4 trillion
- Debt Service: N15.38 trillion
- Other Expenditures: N2 trillion
Total Expenditure Target: N47.9 trillion
The substantial gap of N13.08 trillion will primarily be financed through domestic borrowing and other deficit-financing measures. Specifically, the government is planning to raise N7.3 trillion through domestic loans and N1.8 trillion from external financing, totaling N9.2 trillion. Additionally, N3.5 trillion is expected from multilateral (IMF/World Bank) and bilateral loans, while the balance will come from privatization proceeds.
Previous and Current Fiscal Deficits
Nigeria has been running fiscal deficits for several years, with the 2023 fiscal deficit recorded at N9.66 trillion, financed primarily through domestic borrowing. This resulted in an increase in the public debt stock to N87.3 trillion by the end of 2023. For 2024, the fiscal deficit stood at N4.2 trillion as of the first 8 months, with revenue falling slightly short of projections and expenditure exceeding targets.
Impact on Nigeria’s Debt and Exchange Rates
Nigeria’s growing reliance on deficit financing is expected to increase public debt, which has already surpassed N135.8 trillion as of June 2024. With the projected additional borrowing of N9.2 trillion for 2025, the country’s public debt could exceed N150 trillion by the end of 2025, unless the exchange rate undergoes adjustments.
Debt servicing costs have become a significant burden on Nigeria’s budget, accounting for a large portion of government expenditures. As the country continues to rely on external borrowing, there are concerns that the demand for foreign currency will put further pressure on the naira, potentially leading to more depreciation. This dynamic could exacerbate Nigeria’s fiscal challenges, given that persistent deficits often lead to higher interest rates and inflated debt servicing costs.
Long-term Outlook and Risks
The government is banking on tax reforms and improved compliance to boost revenues, with a particular focus on initiatives led by Taiwo Oyedele, aimed at improving tax collection. However, the sustainability of these revenue-boosting measures is uncertain, and there are concerns about the country’s capacity to generate the necessary income to close its fiscal gap without further borrowing.
The 2025 fiscal deficit of N13.08 trillion represents a major challenge for President Bola Tinubu’s administration, with experts warning that continued deficit financing could strain Nigeria’s economic stability. As the government struggles to balance revenue shortfalls against rising expenditures, the need for structural economic reforms becomes more critical to avoid long-term fiscal and monetary instability.
With Nigeria’s fiscal deficit projected to reach a historic N13.08 trillion in 2025, the country faces significant financial challenges. The rising debt service costs, combined with ongoing expenditure pressures, suggest that the government will need to explore more sustainable fiscal and monetary strategies to reduce borrowing dependence and strengthen its revenue base. If these issues are not addressed, Nigeria’s public debt could continue to spiral, while the naira and broader economic conditions may face further strains.
