President Bola Ahmed Tinubu disclosed during the presentation of the 2025 Budget of Restoration to the National Assembly on December 18, 2024, that Nigeria’s fiscal deficit hit a staggering N7.05 trillion by the close of the third quarter of 2024.
This figure underlines the country’s continued struggle to align ambitious spending targets with limited revenue generation amidst persistent economic pressures.
The revelation accompanies the rollout of the largest proposed budget in Nigeria’s history—a N47.9 trillion spending plan for 2025, with a projected revenue of N34.8 trillion. This leaves a projected fiscal deficit of N13.1 trillion, surpassing previous records.
As of Q3 2024, Nigeria generated N14.55 trillion in revenue, meeting 75% of the annual revenue target. Government expenditure during the same period reached N21.6 trillion, or 85% of the budgeted spend. These figures come with a fiscal shortfall of N7.05 trillion, denoting an imbalance that has characterized the nation’s fiscal performance over recent years.
The federal government’s initial 2024 budget was set at N35 trillion, with a projected revenue of N25.8 trillion, leading to an anticipated deficit of N9.2 trillion. However, increasing expenses, driven by inflation, heightened debt servicing obligations, and unforeseen adjustments such as rising wage bills, have worsened the deficit.
President Tinubu, during his presentation, emphasized the need for increased government spending to stimulate economic recovery. Key areas of focus include infrastructure, security, and human capital development, which the administration views as vital for sustainable growth.
“While challenges persist, we have improved revenue collection and fulfilled key obligations. The transformational effects of these actions on our economy are gradually being felt,” Tinubu stated.
The President also highlighted ongoing efforts to reduce reliance on debt by improving fiscal discipline and exploring alternative financing methods.
Positive Economic Indicators
Despite the widening deficit, some macroeconomic indicators suggest signs of recovery:
- GDP Growth: The economy expanded by 3.46% in Q3 2024, compared to 2.54% in Q3 2023.
- Foreign Reserves: Standing at $42 billion, Nigeria’s reserves provide a buffer against external shocks.
- Trade Surplus: Data from the National Bureau of Statistics (NBS) shows a trade surplus of N5.8 trillion, driven by rising exports.
These improvements offer some optimism but are insufficient to offset the impact of a widening fiscal gap, as government borrowing continues to climb.
Budget in Dollar Terms
The 2025 budget, pegged at N47.9 trillion, translates to approximately $31 billion at an exchange rate of N1,500 to the dollar. By contrast, the 2024 budget of N35 trillion equaled $23 billion under the same exchange rate assumption. This jump underscores both the scale of Nigeria’s spending ambitions and the challenges posed by exchange rate volatility.
Adherence to the Fiscal Responsibility Act
The growing deficit raises concerns about Nigeria’s compliance with the Fiscal Responsibility Act (FRA) of 2007, which caps the fiscal deficit at 3% of GDP. The government projects a deficit of N13.08 trillion for 2025, equivalent to 3.87% of GDP, and a sharp rise from the N9.18 trillion estimated for 2024.
Key factors driving the increased deficit include:
- The implementation of a new minimum wage.
- Pension obligations and consequential adjustments.
- Rising debt servicing costs.
N15.81 trillion has been allocated for debt servicing, which is more than the combined budgets for defense and security – N4.91tn, infrastructure – N4.06tn, health – N2.4tn, and education – N3.5tn.
President Tinubu’s administration has pledged to reduce the deficit to FRA-compliant levels by 2025. However, achieving this goal will require decisive action on revenue mobilization, expenditure controls, and strategic investment prioritization.
To finance the widening fiscal gap, the government plans to rely predominantly on domestic borrowings, citing limited access to external financing. This strategy is expected to heighten concerns about crowding out private-sector borrowing and further increasing debt-servicing obligations.
With the 2025 budget’s focus on macroeconomic stability, reducing inflation, and fostering inclusive growth, the administration faces a daunting challenge in balancing growth ambitions with fiscal sustainability.
Economists have warned that Nigeria’s reliance on borrowing to cover deficits could lead to long-term vulnerabilities unless accompanied by structural reforms to boost revenue and cut wasteful spending.
