After thorough dissection of the 2025 budget proposal, a herd of finance and economic experts have expressed concern that due to policy mismatch, the below-average performance of the 2024 budget, and a rising debt profile, among other reasons, the ambitious budget would, as usual, be unrealistic. The federal government, being the major borrower, will continue to crowd out private sector investment.
Analysts from a Lagos-based investment banking firm, Affrinvest (West) Africa Limited, raised concerns about the 2025-2027 Medium Term Expenditure Framework (MTEF).
According to the analysts in an emailed response to the Nigerian Tribune, capital expenditure will suffer as usual because actual CAPEX implementation has fallen short of 80.0 percent in the last nine years, and there is a decline in allocation from 42.3 percent in 2024 to 34.4 percent of the total budget in 2025.
They also highlighted that 56.3 percent of the projected revenue expected from oil is built on overly bullish oil production forecasts.
Meanwhile, the challenging operating business environment could limit non-oil taxes realizable if companies continue to compound losses, scale down, or exit the economy. Besides, the actual pro-rata revenue for January–August 2024, N12.7 trillion versus a total of N25.9 trillion, may indicate that the actual deficit for 2024 and 2025 could outrun projections by no less than 30.0 percent each.
“As such, we highlight debt sustainability risks (debt stock rose to N134.0 trillion in H1:2024 from N97.3 trillion in 2023-end) and the likely disruptive impact of large government borrowing in the domestic market in 2025.
“The Federal Government could crowd out the private sector during a period of monetary tightening, where businesses are competing for capital to recapitalize or sustain operations. On the other end of the pole, we note the risk of financial repression to investors.
“In summary, we are concerned that the fiscal deficit (projected to be N16.0 trillion by 2024-end) could rise even further in 2025 due to overarching pressure from growing expenditure bills over the weak revenue base of the federal government.
“Hence, we reiterate the need for holistic implementation of fiscal prudence measures to better utilize the currently thin resources without further burdening citizens,” the Affrinvest analysts submitted.
According to them, beyond the policy mismatch, there are concerns about the realism of assumptions driving expectations for 2025. For instance, the crude oil production forecast of 2.06 million barrels per day (bpd) may be overly optimistic, considering that average production, including condensates, in 2024 has plateaued at 1.52 million bpd as of September, after dropping from a peak of 1.64 million bpd in January.
Also, the analysts stated that there is weak historical basis for this optimism, considering that production has faltered since the pandemic: 2020 (1.83 million bpd), 2021 (1.62 million bpd), 2022 (1.38 million bpd), and 2023 (1.47 million bpd).
Similarly, macroeconomic projections, including the 4.6 percent Gross Domestic Product (GDP) growth rate, may be daunting without dramatic and sustained growth in the oil sector.
Additionally, inflation and exchange rate targets of 15.75 percent and N1,400/$, respectively, diverge significantly from consensus expectations, which account for ongoing structural challenges in the country. The National Bureau of Statistics says Nigeria’s inflation rate was 33.88 percent in October — up from 32.7 percent in September.
“We are also concerned about the de-emphasis of Capital Expenditure (CAPEX) in the proposed budget, evidenced by the decline in allocation from 42.3 percent in 2024 to 34.4 percent of the total budget in 2025 (NB: actual CAPEX implementation has fallen short of 80.0 percent in the last 9 years).
Meanwhile, debt servicing, MDA personnel costs, and MDA overhead costs as a share of total spending are expected to increase to 32.1 percent, 15.0 percent, and 2.6 percent, respectively, from 23.0 percent, 13.7 percent, and 1.9 percent. For context, MDA personnel costs account for 42.5 percent of total non-debt recurrent expenditure, reflecting recent adjustments to the national minimum wage.
The Chief Executive Officer (CEO) of CFC Advisory, Tilewa Adebajo, in his reaction, said all the projections in the 2025 budget are unrealistic.
According to him, the 2024 budget was the first for this administration.
So, it is important to first analyse its impact vis-à-vis the reform project programs. This will give a clue on how the 2025 budget performance and impact would be.
The Federal Executive Council (FEC) recently approved a N47.9 trillion federal budget estimate for the 2025 fiscal year.
The Federal Government budget estimate for aggregate expenditure is N47 trillion, which includes a borrowing of N13.8 trillion—3.87 percent of the estimated budget.
For the first time, provisions for contributions to development commissions passed by the National Assembly are included.
The budget also included parameters for the 2025-2027 medium-term fiscal framework, including an oil price benchmark of $75 per barrel for 2025, oil production of 2.06 million barrels a day, an exchange rate of N1,400 to $1 and GDP growth of 4.6 percent expected for 2025.
According to Adebajo, the challenge is that, in the last year or so, Nigeria’s domestic debt profile has moved from N50 trillion to about N70 trillion.
He explained that the government has added about N20 trillion to the debt profile—nearly 50 percent of the existing debt. The finance minister also mentioned raising another $2.2 billion in external debt financing.
He stated, “About $1.7 billion of that is expected from a Eurobond and another N500 billion from a Sukuk bond. On the foreign debt side, it has stabilised at about $41 billion, but with these new borrowings, Nigeria’s external debt could approach $45 billion by year-end, which is becoming unsustainable. These bonds are non-investment grade, referred to as junk bonds.
“We are paying between nine and 13 percent on our bonds, which is quite expensive, especially in an era where interest rates are being cut in the US. It is time to consolidate budgets, close others, and focus on the 2025 budget while understanding the impact of reforms to gauge performance,” he said.
Adebajo concluded, “Projections have consistently missed their targets. For instance, the exchange rate projection of N700/$ and others in past years have been far off target. With significant challenges in deficit financing, we must ask: what revenues exist to finance this budget?
Historically, we have only achieved 65 to 70 percent of revenue targets. Increasing oil production to 1.8 million barrels a day needs to reflect in foreign reserves, and we need a more transparent Federation Account operation system.”
He criticised the Fiscal Responsibility Commission for its silence, emphasising the need for realistic projections to address Nigeria’s fiscal challenges.
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