Did the 2024 ‘Renewed Hope Budget’ pass the litmus test?

The 2024 ‘Renewed Hope’ budget unveiled by President Bola Tinubu was a bold attempt to address Nigeria’s economic challenges and deliver on campaign promises.

The budget sought to boost revenue, fund critical infrastructure, and expand social programmes, but even with a historic total expenditure plan initially at N27.5 trillion, later amended to N35 trillion, the fiscal spending was unable to lift the economic burden off the citizens.

These fiscal imbalances speak to the question: Does the 2024 budget truly pass the litmus test of fiscal sustainability and economic impact?

Revenue projections: Lofty goals or achievable targets?

The government initially estimated revenue at N18.32 trillion, but adjusted for amendment, revenue projections ballooned to a lofty height of N25.9 trillion.

Meanwhile, actual revenue as of eight months to August last year stood at N12.7 trillion, indicating that the government would need to generate at least N13 trillion within four months to meet its target.

Analysts explained that with Africa’s most populous nation having a relatively low tax-to-GDP ratio compared to peers, its revenue base would remain challenging, making it solely dependent on fluctuating oil revenues.

For instance, the tax-to-GDP of a country of over 220 million people remains at about 10 percent, far below the African average of 16 percent. Without broadening the tax base and enhancing collection systems, Nigeria’s fiscal stance may remain threatened with widening deficits and borrowings.

“Budgeted revenue for the year is on course to underperform by no less than 25.0 percent, given the actual performance as of eight months,’ according to analysts at Afrinvest Research.

The federal government is estimated to have borrowed N41.5 trillion from domestic and external sources (including the Naira equivalent of the recent Eurobond). With this, FG’s total debt profile should gross 128 trillion, while the cumulative national debt profile is estimated at 138 trillion, the analysts said.

“Against this backdrop, we estimate that the actual deficit in 2024 would exceed the budgeted 9 trillion by 72.8 percent in the minimum should the total expenditure plan of 35.1 trillion be fully accommodated.”

“These fiscal imbalances speak to the question: Does the 2024 budget truly pass the litmus test of fiscal sustainability and economic impact?”Key budget assumptions: Hopes raised but dashed

The 2024 budget was premised on some very optimistic assumptions, but as the country moves into a new year, the macroeconomic projections never materialised. For instance, the budget expected the exchange rate to average N800 per $1, but naira-dollar exchanges for above N1,500 to a USD.

Similarly, inflation was projected to average 21.4 percent at the end of 2024, but prices accelerated to a record high, climbing to a more than 28-year high at 34.6 percent as of November last year.

The budget also didn’t meet up to its crude oil output expectation as production hovers around 1.40 million barrels per day (mbpd) as against the 1.78 mbpd budgeted. This shortfall dampened revenue collection and offset gains from non-oil tax revenue, which outperformed the budget by 60.1 percent at N3.8 trillion.

The Renewed Hope budget also pegged real gross domestic product (GDP) at 3.8 percent, but as of the third quarter of 2024, GDP was 3.46 percent, with many analysts predicting that the economy is on course to reach 3.6 percent as the country has witnessed three consecutive GDP growths last year. This is, however, still lower than the projected figure.

Expenditure priorities: Balancing growth and welfare

The budget allocates N10 trillion for capital projects, a 34.7 percent increase from 2023, focusing on transport, energy, and digital infrastructure. Yet, with inflation at 34.6 percent as of November 2024, the real value of these allocations may be eroded.

Similarly, education and health receive N2.1 trillion and N1.3 trillion, respectively, but these figures represent just 7.9 percent and 5 percent of total expenditure, lagging behind UNESCO and WHO recommendations.

The fiscal spending earmarked N3.25 trillion for defence and security, representing 12 percent of total expenditure, yet Nigerians paid a whopping N2.3 trillion in ransoms in the year as widespread kidnappings gripped the country.

“There is a need to scrutinise the efficiency of spending in the sector as it has yet to improve national security significantly. This drives home the point that spending alone might not be the only solution to solving the country’s insecurity challenges,” the Nigerian Economic Summit Group said.

“Non-monetary measures such as tackling the root causes of social, economic, and political exclusion should be prioritised. Hence, social investment should also be prioritised in the annual budgetary allocations,” NESG added.

Debt sustainability: Walking a tightrope

Nigeria’s public debt surged by N12.6 trillion to N134.3 trillion as of the end of the first half of 2024, with debt servicing consuming not less than 60 percent of federal revenues.

The N9.18 trillion deficit will be financed largely through borrowing, raising concerns about long-term fiscal sustainability. Analysts warn that unless revenue grows significantly, the debt-to-GDP ratio, currently at 55 percent, could become unsustainable.

“Following an estimated 142.7tn increase in the national debt profile in 2024 (FG: N41 Stn, States: N1.2tn) from domestic and external sources, we estimate public debt stock as a percentage of GDP to have risen to 58.3 percent from 40.1 percent in 2023,” a report by Afrinvest Research showed.

“This implies a 33ppts outrun over the sustainable median threshold of 55.0 percent set for low-income countries (LICs) by the IMF and World Bank,” it added.

Inflation and social safety nets: A double-edged sword

The government’s plan to reduce inflation to 21.4 percent by year-end 2024 relies on stabilising food and energy prices. Headline inflation has quickened, with food inflation almost hitting 40 percent and petrol prices still markedly high.

Meanwhile, the N25,000 conditional cash transfer to the 75 million household social investment program aimed to cushion the effects of subsidy removal had scanty impacts, as over 64 percent of Nigerians had to skip meals and go to bed hungry as they couldn’t afford enough food, in 2024, according to the NBS.

While the “Renewed Hope Budget” reflects ambition, it’s largely not delivered economic gains to the Nigerian people, as 129 million citizens have been thrown into poverty as per a report by the World Bank.

The hopes therein were dashed by low revenue collection efficiency, rising debt, lack of fiscal discipline, and inflationary pressures. Meeting the set fiscal goals for 2025 will require structural reforms, improved transparency, and stringent fiscal discipline.

Without these measures, the N47.9 trillion budget dubbed “Budget of Restoration: Securing Peace, Rebuilding Prosperity” may fall short of delivering tangible gains and meeting its key assumptions just as 2024’s budget.