Nigeria’s budget deficit declined marginally by 1.85 percent on a year-on-year count as the foreign exchange reform boosted revenue inflows for the federal government.
BusinessDay analysis of the latest data from the Budget Office of Nigeria shows that the country’s fiscal deficit fell to N6.92 trillion last year from N7.03 trillion in 2022.
The decline is also the first drop since 2018 when the deficit fell to N3.64 trillion from N3.81 trillion in 2017.
A fiscal deficit is a shortfall in a government’s revenue compared with its expenditure. Experts say a reduced budget deficit may help the government to spend more on capital projects and human capital which are critical in spurring economic growth, delivering jobs and reducing poverty.
A breakdown of the budget document shows that the government got a revenue of N11.88 trillion, more than the projected revenue of N11.05 trillion. They spent less than the projected amount of N18.8 trillion and N24.8 trillion respectively.
In 2022, the actual revenue was N7.76 trillion, lower than the projected revenue of N9.97 trillion. Of the projected budgeted expenditure of N18.14 trillion, only N14.79 trillion was spent.
“It is good that the government has met its revenue target marginally due to the gains from the devaluation of the naira. So, it has benefitted the government. But it could have been more if the oil subsidy had been permanently removed,” Adeola Adenikinju, a professor of economics and president of the Nigerian Economic Society, said.
He said the exchange rate gain has been at the cost to the economy because it has also created macro-economic challenges that have led to the exit of some multinationals from Nigeria creating issues around jobs and poverty.
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A recent report by FSDH Research noted that higher inflows will improve fiscal deficit and debt sustainability ratio in the short term.
Since President Bola Tinubu announced petrol subsidy removal during his inauguration last year May, pump petrol prices have more than tripled to N600, while the value of the naira has plunged following the floating of the currency.
The Central Bank of Nigeria merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.
The official exchange rate fell from N463.38/$ to N1,523.9 on July 8, 2023. At the parallel market, the naira is now pushing above N1,520/$ from 762/$.
“The reforms have had a major impact on revenue even though they are creating hardship for people,” Muda Yusuf, chief operating officer of the Centre for the Promotion of Private Enterprise, said.
He projected that 2024’s budget deficit will increase due to revenue shortfall or the inability to meet revenue projections.
“The revenue outcome for 2024 is very ambiguous. They are not likely to meet the revenue with the way things are going, making the fiscal deficit higher because they had planned that they would make so much money from subsidy removal but it is back and forth,” he noted.
Yusuf noted that borrowing is likely to increase because of the need to bridge the deficit gap. “If the gap is higher, it means the need for borrowing will be higher leading to debt service problems.”
Further analysis of the budget data shows that the actual debt service cost was N7.66 trillion in 2023, a 16.9 percent rise from the projected N6.56 trillion. In 2022, actual debt service cost rose marginally to N3.76 trillion from the budget amount of N3.69 trillion.
Last month, an Accelerated Stabilisation and Advancement Plan draft report presented by Wale Edun, minister of finance and coordinating minister of the economy, revealed that Nigeria will spend up to N5.4 trillion on petrol subsidy in 2024.
This comes after months of repeated denials by government officials who insisted there was no subsidy.
“At current rates, expenditure on fuel subsidy is projected to reach N5.4 trillion by the end of 2024. This compares unfavourably with N3.6 trillion in 2023 and N2.0 trillion in 2022,” the report said.
But Bayo Onanuga, the president’s special adviser on information and strategy, dismissed the viral document, describing it as unofficial and merely a policy proposal still under review at the highest levels.
The country’s deficit has grown by 370 percent from 2015 to 2023, which has led to a high debt and debt servicing profile, according to a recent report by PwC.
“Though debt stock to GDP is comparatively low at 37.1 percent, the debt servicing to revenue ratio remains high at 124 percent as of the first half of 2023,” the report said.
