• Saturday, May 18, 2024
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IMF to FG: Supplementary budget may be needed to pay new minimum wage

10 African countries with the highest debts to IMF

The International Monetary Fund (IMF) has recommended that the federal government may need to raise a supplementary budget to accommodate a pay rise for Nigerian workers.

The IMF said in its latest country staff report for Nigeria that the negotiated amount may surpass the budgeted amount in the original 2024 budget.

“The authorities noted that a supplementary budget may be needed to accommodate the outcome of the ongoing wage structure negotiations which may exceed what they had included in the 2024 budget,” the Fund said.

The Washington-based Fund also said that the government might need to raise the domestic and external borrowing ceilings to prevent fresh borrowings from the central bank’s Ways and Means.

The major twin reforms of the President Bola Tinubu administration – the removal of petrol subsidy and the liberalisation of the exchange rate – have placed heavy burdens on Nigerians, straining their incomes and pushing many into the poverty threshold.

While these policies have resulted in a cost-of-living crisis, organised labour has been on the neck of the government demanding a pay rise.

Nigeria’s minimum wage saw an increase in 2019 to N30,000 ($22) up from N18,000 ($12). Given the current economic headwinds, the labour unions have negotiated for N615,000 ($439) which the government is yet to budge.

However, there are indications that the tripartite committee set up by the government on wage review may recommend N70,000 as the new minimum wage.

The government allocated N6.48 trillion in the 2024 budget for personnel costs but the Fund holds that the amount may be insufficient.

The IMF further noted that the country’s budget deficit for 2024 is expected to surpass projections, owing to implicit subsidies for fuel and electricity, alongside rising interest expenses on debt.

It stated that the federal government may experience a higher fiscal deficit of 4.5 per cent of GDP relative to the 2024 budget target of 3.4 per cent of GDP.

“The drivers are lower oil/gas revenue projections, reflecting IMF oil price forecasts but incorporating recent production gains; higher implicit fuel and electricity subsidies; continued suspension of excise measures included in the MTEF; and higher interest costs.

“Staff factors in an under-execution of capital expenditure in line with past outcomes and estimates an FGN deficit of 4.5 per cent of GDP relative to the 2024 budget target of 3.4 per cent of GDP.

“For the consolidated government, this implies a projected deficit of 4.7 percent of GDP in 2024—compared to 4.8 percent of GDP in 2023 measured from the financing side—which is appropriate given the large social needs and factoring in a realistic pace of revenue mobilisation,” the Washington-based Fund said.

“Over the medium-term, staff projects consolidation in the non-oil primary deficit. With rising interest costs, government debt stabilises towards the end of the projection period,” it further stated.

IMF posits that the government net financing needs can be actualised from the market and external borrowing on increased domestic market financing rather than through Ways and Means from the apex bank.

It noted that domestic market financing needs to increase by 1.5 per cent of GDP over 2023.

It said: “Based on staff’s projections, the authorities must raise the domestic and external borrowing ceilings to prevent renewed recourse to CBN financing.

“With higher interest rates, banks and nonbanks should have sufficient appetite—as indicated by market sources—conditional on careful management of system liquidity, including a likely reduction in the currently high cash reserve requirement (CRR).

“In addition, the government wants to retire outstanding ways and means borrowing from the CBN of 2.5 percent of GDP through the issuance of further domestic securities,” the Fund said.

“While staff agrees that ways and means financing should be brought to zero by end-2024 in line with the law, the authorities may need to consider other options to avoid crowding out private sector credit,” the IMF added.