Nigeria’s 2025–2027 Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) is, on the surface, an ambitious document aimed at bolstering economic confidence. With a projected exchange rate of ₦1,400/$ and a crude oil benchmark of $75 per barrel, the government signals optimism in its fiscal strategy. However, such projections are more aspirational than realistic. If not recalibrated, they threaten to deepen the country’s already precarious economic situation.
The assumption of a ₦1,400/$ exchange rate is not just optimistic—it is alarmingly disconnected from Nigeria’s current economic trajectory. The naira’s sharp depreciation, driven by chronic dollar shortages, declining foreign reserves, and waning investor confidence, tells a starkly different story. By October 2024, the naira had already tumbled to ₦1,651.78/$, and analysts predict further devaluation, with some estimating rates as high as ₦1,990/$ by 2025.
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Setting a fiscal framework on such a fragile foundation risks triggering a cascade of economic shocks. A weaker-than-projected naira would balloon the cost of servicing Nigeria’s foreign debt—already a staggering ₦3.8 trillion in 2024, far exceeding initial budget projections. Public spending would spiral, further tightening the fiscal noose on a government that allocates over 90 percent of its revenue to debt servicing.
Moreover, the disparity between official and parallel exchange rates could fuel speculation, undermining confidence in the naira and destabilising Nigeria’s foreign exchange markets. Such instability would weaken foreign direct investment (FDI) flows, already in decline, and exacerbate inflationary pressures that are eroding household incomes.
The government’s reliance on a $75-per-barrel crude oil benchmark is another glaring vulnerability. This figure assumes a level of market stability that appears increasingly implausible. Global oil markets remain deeply volatile, influenced by shifting geopolitics and unpredictable production dynamics. The potential re-election of Donald Trump in the United States, for example, could lead to increased Russian and Ukrainian oil exports, glutting the market and driving down prices.
Domestic factors compound the risks. With ongoing security challenges disrupting oil production and theft syphoning billions from Nigeria’s oil revenues, even a $75 per barrel benchmark might not translate into fiscal stability. A price collapse could significantly reduce government revenue, derailing critical public investments and exacerbating economic stagnation.
“A weaker-than-projected naira would balloon the cost of servicing Nigeria’s foreign debt—already a staggering ₦3.8 trillion in 2024, far exceeding initial budget projections.”
These fiscal miscalculations extend beyond technical flaws—they strike at the heart of Nigeria’s economic credibility. Unrealistic assumptions about exchange rates and oil revenues undermine public trust and heighten economic uncertainty. For a nation grappling with record inflation, dwindling investor confidence, and high unemployment, the costs of such poor planning are intolerable.
Nigeria’s policymakers must acknowledge the hard truths of the nation’s economic realities. A recalibrated exchange rate closer to ₦1,500/$, as suggested by market analysts, would align projections with prevailing economic conditions. Similarly, adopting a more conservative oil benchmark, in the range of $60–$65 per barrel, would provide a buffer against global market volatility.
Yet realism alone will not suffice. The government must urgently accelerate efforts to diversify its revenue base, reducing its dependence on oil and fostering growth in sectors such as technology, manufacturing, and agriculture. These efforts must be supported by stronger fiscal discipline and a transparent policy environment to restore investor confidence and stabilise the economy.
Nigeria stands at a defining moment. Will its leaders chart a pragmatic course toward sustainable economic management, or will they succumb to the allure of politically expedient but unsustainable projections? The answer will determine whether Nigeria can break free from its cycle of fiscal crises and move toward a future of stability and growth.
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To achieve this, the government must prioritise fiscal discipline, transparency, and accountability. This includes strengthening public financial management systems, reducing corruption, and improving revenue collection. Additionally, the government should diversify the economy, reduce its reliance on oil revenue, and promote investment in sectors with high growth potential.
Furthermore, social safety nets should be strengthened to protect vulnerable populations from economic shocks. This includes expanding access to healthcare, education, and social welfare programs. By embracing these reforms, Nigeria can create a more equitable and prosperous society.
The stakes are high, and the world is watching.
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