The Federal Government of Nigeria has proposed a total expenditure of N47.9 trillion for the 2025 fiscal year, marking a significant financial undertaking to address the country’s economic challenges and developmental priorities.
Atiku Bagudu, Minister of Budget and Economic Planning, announced this development after the Federal Executive Council (FEC) meeting presided over by President Bola Tinubu on Thursday.
Bagudu noted that the proposed budget is based on projections contained in the recently approved 2025-2027 Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP). He emphasized the government’s commitment to ensuring a stable and growth-oriented fiscal plan, even as the country continues to grapple with significant revenue and expenditure pressures.
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Key Budget Parameters
The proposed budget assumes a crude oil benchmark price of $75 per barrel and an estimated daily oil production level of 2.06 million barrels per day (bpd). However, the exchange rate has been pegged at N1,400 per dollar, reflecting the continuing depreciation of the naira amidst persistent foreign exchange challenges.
The Federal Government is projecting a revenue target of approximately N33 trillion for the year, leaving a deficit of N14 trillion that will need to be financed through a combination of external and domestic borrowing.
Bagudu stated that the government has set an ambitious GDP growth rate target of 4.6%, which builds on the 3.19% growth rate recorded in the second quarter of 2024. He explained that this optimistic projection underscores the administration’s confidence in its economic policies and reforms aimed at stimulating growth and tackling inflation.
Challenges with Revenue Generation
Despite these projections, concerns have been raised about the government’s ability to meet its revenue targets, particularly given the current state of the economy and the revenue collection system.
The Federal Inland Revenue Service (FIRS) is expected to generate at least N30 trillion in 2025 to help meet the government’s targets. This figure represents a sharp increase from the N19.4 trillion target set for 2024, posing a significant challenge for tax authorities.
Bagudu highlighted some positive trends in non-oil revenue streams, such as Value Added Tax (VAT) and corporate taxes, which have performed better than expected in 2024. However, he acknowledged that delays in achieving pro-rated targets remain a significant concern.
The minister emphasized that the Federal Government remains committed to improving fiscal discipline and addressing inflation. He highlighted the government’s goal of sustaining a January-December budget cycle, which requires timely passage and signing of the 2025 budget.
To ensure this, the proposed budget will be submitted to the National Assembly by Friday, November 17, 2024, or at the latest by Monday, November 18, 2024. Bagudu expressed optimism that the 2025 budget would be passed and signed before the end of December, enabling a smooth transition into the new fiscal year.
Addressing the Deficit
With a N14 trillion deficit, the Federal Government will need to rely heavily on borrowing to fund its expenditures. Bagudu explained that the government plans to secure funds through external borrowing, local bonds, and domestic foreign exchange-denominated bonds.
Given the volume of the deficit and the backdrop of revenue shortfalls, analysts have suggested that the Federal Government may once again approach the Central Bank of Nigeria (CBN) for bailouts.
A financial expert remarked: “I feel the government will run to the CBN again for a bailout. This time, no new money will be printed. FG will be making withdrawals from the N7.4 trillion earlier repaid to the CBN under the Ways and Means program.”
The proposed 2025 budget of N47.9 trillion is below the country’s $31 billion budget in 2014, reflecting the significant impact of currency devaluation and inflation over the years. In dollar terms, the 2025 budget is approximately $28 billion, underscoring the naira’s diminished purchasing power and the challenges of managing a large-scale budget in an inflationary environment.
Concerns Over Debt and Market Risks
Financial experts and international observers have raised alarms about Nigeria’s heavy reliance on borrowing to fund the deficit. Nigeria’s growing debt profile, particularly external debt, poses significant risks. Analysts warn that issuing domestic foreign exchange-denominated bonds could fragment financial markets, while external borrowing would expose the country to volatile international market conditions.
Additionally, the naira’s devaluation has made debt servicing costs significantly higher, adding to the country’s fiscal burden. Critics have also pointed out that the use of domestic foreign exchange bonds may not provide the financial relief the government expects, as it could create market distortions and increase overall debt servicing costs.
Economists note that the success of the 2025 budget will depend on the government’s ability to expand revenue sources, control expenditures, and manage its growing debt profile. While the administration’s optimistic GDP growth projections and plans to tackle inflation suggest a positive fiscal trajectory, several challenges remain.
These include achieving ambitious revenue targets, mitigating the impact of exchange rate volatility, and addressing the rising cost of debt servicing. Analysts fear that if these challenges are not addressed, the government may continue to rely on stopgap measures such as CBN bailouts and asset sales, further undermining Nigeria’s economic stability.