By Yomi Olugbenro
1. The proposed spending represents 37% increase over 2024 amended budget of N35.06 trillion. While this appears to be highly ambitious, the quantum leap is directly attributable to Naira devaluation. Using the budgeted exchange rates for both years, 2025 budget amounts to $32b (N1, 500/$) against 2024 budget of $44b, a reduction by 37%. So, blame it on the currency’s value!
2. The budget is christened as “budget of restoration: securing peace, rebuilding prosperity” with the objectives of restoring macroeconomic stability, improving business environment, and fostering inclusive growth, employment, and poverty reduction. With defense and security having the highest allocation of N4.91 trillion, there appear to be a matching of action and words. Business environment will also be greatly improved in an atmosphere of peace and security. Education and healthcare also enjoyed priority allocations with N3.52 trillion and N2.48 trillion respectively. Some of the macro-economic projections include an expectation that inflation will reduce to 15% in 2025. I say Amen to that! That’s all I can say. On exchange rate, the goal should be Naira recovery rather than an expected stability at N1, 500/$.
3. The addition of debt servicing and recurrent expenditure for 2025 amounts to about N30 trillion which is about the size of the planned revenue of N34.82 trillion. Put differently, if the revenue estimate is fully achieved (and it’s a big IF), it will only be sufficient for debt servicing and recurrent expenditure. Capital expenditure of N13.61 is fully tied to borrowing, which explain why there’s under performance in most budget years. Further, the portion of planned capital expenditure that is planned for core infrastructure is N4.06 trillion. (There’s a need to revisit how spendings are classified. The real capital spending is what goes to infrastructure development.)
4. Projected revenue for 2025 is N34.82 trillion, representing 73% of total spending and deficit of N13.1 trillion (27% of total expenditure). Simply put, borrowing continues, with debt servicing to gulp N15.8 trillion, exactly 1/3rd of the total budgeted spending or 45% of planned revenue. For most years, planned revenue is not often met. As at Q3 of 2024, only 75% of planned revenue has been achieved – which, in comparison with other years, is great performance? Shortfall in revenues means either additional borrowing (increased debt servicing cost) or under funding of capital projects (as it’s often the case). As far as debt servicing and recurrent expenditure estimates are concerned, it is more likely to exceed budget than under-perform.
5. It was surprising to see budgeted exchange rate at N1, 500/$ against N1, 400 stated in MTEF and the consistent position from monetary policy authorities that Naira is undervalued. This could potentially be explained as misalignment between monetary and fiscal policies. It is unclear if the intention is to set the expectation so low with a view to over-deliver or an acceptance of the reality of the direction of travels for Naira, albeit in near term. The macro-economic implications of a possible medium term exchange rate of N1, 500/$ is unsettling!
6. Breakdown of revenue estimates shows that 56% (N19.6 trillion) is expected from oil sources while 44% (N15.22 trillion) is expected from non-oil sources. Oil revenue is tied to the three variables of quantity and price of oil as well as exchange rate, all of which have proven to be beyond our complete grasp. Crude oil production is planned for 2.06mbd with oil price benchmark of $75 (based on MTEF) and exchange rate of N1,500/$. Having most of the determinants as variables makes the outcome quite uncertain. Non-oil revenue is made of taxes and other independent sources. Performance from non-oil tax revenue against budget has been great with focus on domestic revenue mobilization and the impact of currency devaluation.
7. Non-oil tax revenue (N5.7 trillion) constitutes the largest share of non-oil revenue of N15.22 trillion and is likely to be achieved. I hold the view that tax yield can significantly be increased by blocking loopholes and leakages; a lot of improvements have been seen lately with significant headroom for more. Other sources of non-oil revenue include dividends and surpluses from government owned enterprises, grants and donor funds, levies, fines, recoveries, sale of assets and other independent revenues. While many of the sources create significant opportunities, the discipline, prudence, and accountability required is what determines the reality. Much more can be made through government owned enterprises and unlocking values from government assets.
8. While the remarks from the National Assembly leaders touched on the importance of the pushing through the tax reforms, not so much is clearly laid out in both MTEF and the budget speech. This might have been a cautious approach at lowering the high temperature around the tax bills and allowing the ongoing consultations to continue without further ruffling of feathers. The expectation is that the contentious areas of the tax reform bills will be ironed out so that the benefit of improving the business environment, providing the needed succor to the vulnerable and potentially deepening tax penetration in the country can be achieved. It’s a much-needed reform.
9. With less than two weeks to the New Year, it is hoped that the budget can still be passed to allow for a full-year implementation. While the law allows the executive to continue spending up to certain percentage of the prior year’s budget, there’s a sense of direction and purpose that is achieved when the year is started with an Appropriation Act. Businesses and investors take cues from government fiscal direction and the budget is by far the most important pillar of that.
10. Nigeria’s budget might appear large on paper, but it represents a fraction of what is required for the desired development. The country’s infrastructure deficit is huge while spending priorities remain misaligned! Until the revenue is raised significantly, there’s work to do in reducing our cost of governance. The amount that is currently required to sustain the structure and bureaucracy of government is unsustainable. To keep the country afloat, it is necessary to drive higher revenues, unlock wealth from government assets, increase infrastructure spending, reduce recurrent and debt servicing cost, block leakages, curb corruption, and raise accountability and transparency in government. And all these levers need to be pulled simultaneously.
