The Nigerian government’s Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) for 2025–2027 aspire to chart a bold economic course. Yet, the assumptions underpinning this framework—an exchange rate of ₦1,400/$ and a crude oil benchmark of $75 per barrel—appear more aspirational than grounded in economic realities. While optimism can inspire confidence, fiscal planning must be rooted in pragmatism, especially in an economy as vulnerable as Nigeria’s.
The naira’s steady decline reflects a litany of structural weaknesses: dwindling foreign reserves, dollar scarcity, and a persistent trust deficit among foreign investors. By October 2024, the naira was trading at ₦1,651.78/$, significantly worse than the government’s projection of ₦1,400/$. Analysts foresee further depreciation, with estimates ranging from ₦1,800 to ₦1,990/$ by 2025.
The government’s projection, detached from these market dynamics, could trigger serious economic distortions. A weaker naira would inflate the cost of servicing foreign debt, which has already surged to ₦3.8 trillion in 2024, a staggering 107.7 percent increase from the previous year. Additionally, a growing disparity between official and parallel market rates risks deepening the foreign exchange crisis, eroding confidence in the currency, and destabilising trade flows.
Fiscal strategy must align with economic realities to avert such scenarios. Projections grounded in more realistic benchmarks, such as BusinessDay’s suggested exchange rate of ₦1,498.09/$, would mitigate risks and foster greater fiscal credibility.
The $75 per barrel crude oil benchmark is another precarious assumption. Nigeria’s dependence on oil revenues exposes it to global market volatilities, which are anything but predictable. Geopolitical uncertainties, including the potential return of Donald Trump to the U.S. presidency in 2024, could significantly alter the dynamics of global energy markets.
Trump’s foreign policy priorities may expedite the resolution of the Ukraine-Russia conflict, potentially flooding the market with Russian and Ukrainian oil. This would exacerbate supply-side pressures, driving crude prices down. Simultaneously, Trump’s pro-oil domestic policies could amplify U.S. production, further depressing global prices.
Additionally, the evolving energy landscape—shaped by OPEC’s production strategies, the ongoing Israel-Hamas conflict, and global inflationary pressures—renders the $75 benchmark highly vulnerable. A more conservative range of $60–$65 per barrel would better insulate Nigeria’s fiscal planning against shocks, offering a cushion in the face of unpredictable price swings.
Unrealistic projections carry far-reaching consequences for Nigeria’s fiscal health. Should actual revenues fall short of expectations, the government will face mid-year budget adjustments, derailing critical projects and public services. Such volatility not only undermines fiscal credibility but also fuels economic uncertainty, discouraging both domestic and foreign investment.
Moreover, inflated revenue assumptions encourage reckless borrowing. Nigeria’s debt servicing already consumes over 90 percent of government revenue, leaving little fiscal room for critical investments in infrastructure, healthcare, and education. Without addressing this imbalance, the nation risks plunging deeper into a debt trap, perpetuating poverty and underdevelopment.
Nigeria must embrace fiscal realism to chart a sustainable economic future. Beyond revising the MTEF’s benchmarks, the government must adopt broader structural reforms to diversify revenue streams. Tax reforms aimed at expanding the tax base, coupled with targeted incentives for non-oil sectors, can reduce the country’s reliance on volatile oil revenues.
Simultaneously, prioritising domestic production and value addition in agriculture, manufacturing, and renewable energy can bolster economic resilience. Investments in human capital—particularly in education and vocational training—are also essential to unlocking Nigeria’s vast demographic potential.
Policymakers should also leverage technology to enhance public financial management, ensuring greater transparency and efficiency in revenue collection and expenditure. By aligning fiscal strategy with economic realities and adopting forward-looking reforms, Nigeria can lay the groundwork for sustainable growth and development.
Nigeria may reshape its economic trajectory with the help of the MTEF and FSP. However, this opportunity will only materialise if the government acknowledges and addresses the disconnect between optimistic projections and harsh realities. Pragmatism must replace political posturing in fiscal planning.
To achieve this, the government must prioritise revenue mobilisation by implementing comprehensive tax reforms to broaden the tax base, enhance efficiency, and reduce tax evasion. It must also enhance public financial management by strengthening institutions responsible for budget execution and financial reporting to improve transparency and accountability.
Furthermore, the government should diversify the economy by investing in sectors with high growth potential, such as agriculture, manufacturing, and technology, to reduce reliance on oil revenues. Additionally, strengthening social safety nets to protect vulnerable populations from economic shocks and promoting inclusive growth is crucial.
Finally, fostering a conducive business environment by implementing policies that attract foreign direct investment and stimulate domestic entrepreneurship is essential. Failure to adapt will not only perpetuate fiscal instability but also deepen the economic hardships faced by millions of Nigerians. For a country with immense potential, this is not merely an economic misstep—it is a betrayal of its people’s aspirations.
By embracing fiscal realism and implementing bold reforms, Nigeria can unlock its potential and build a prosperous future for all its citizens.
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