The Nigerian government’s recently approved Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) for 2025–2027 sets an ambitious economic tone, but some of its key assumptions are raising eyebrows.
Chief among these is the exchange rate pegged at ₦1,400/$ and a crude oil benchmark price of $75 per barrel. While these projections may aim to signal confidence, a closer analysis suggests they rest on shaky foundations with potentially far-reaching consequences.
Exchange Rate: Far From Market Realities?
The assumption of ₦1,400/$ as the exchange rate for the period appears overly optimistic, given Nigeria’s economic trajectory.
Data from the Central Bank of Nigeria (CBN) reveal a steady depreciation of the naira, from ₦1,356.38/$ in January 2024 to ₦1,651.78/$ by October 2024, driven by dollar scarcity, low foreign reserves, and weak investor confidence.
Tilewa Adebajo, CEO of CFG Advisory, expressed concerns on ARISE News, questioning the feasibility of these projections given Nigeria’s rising fiscal deficit, which surged from N13 trillion in 2023 to a projected N18 trillion in 2024.
According to Adebajo, the ₦1,400/$ benchmark exchange rate is far removed from economic realities, with inflationary pressures and deficit financing likely pushing rates to ₦1,800 or beyond.
Echoing this skepticism, BusinessDay estimates a nominal exchange rate of ₦1,990.27/$ for 2025, derived from the average of the nominal exchange rates over ten months, and a real rate of ₦1,498.09/$ after adjusting for inflation.
The 2025 budget estimates highlight the significant disconnect between the government’s assumptions and market realities, underscoring the need for more realistic fiscal planning to avoid economic shocks.
The Implications of a Wider Gap
If the actual exchange rate surpasses the projected ₦1,400/$, it could have far-reaching economic consequences, experts warn.
Firstly, a weaker naira would compel the government to adjust its supplementary budget upwards, increasing spending when debt servicing already consumes over 90 percent of revenue.
Foreign debt servicing costs jumped by 107.7 percent, rising to ₦3.8 trillion between January and August 2024. This far exceeds the ₦1.83 trillion originally planned for 2024, according to the 2025-2027 MTEF & FSP from the Budget Office of the Federation.
Secondly, unrealistic exchange rates for converting oil and non-oil export earnings would diminish government revenue in naira terms, reducing funds available for public investments.
Thirdly, a significant disparity between the official and parallel market exchange rates could further erode confidence in the naira and destabilise the foreign exchange market.
Experts suggest adopting a more realistic projection, such as a real exchange rate of ₦1,498.09/$, to ensure that fiscal planning is grounded in market realities and to prevent economic shocks.
Read also: Lagos State targets N1.97trn IGR to finance 2025 budget
Crude Oil Benchmark: $75 Optimism Amid Global Uncertainty
The MTEF’s crude oil benchmark of $75 per barrel is based on assumptions of stability in global energy markets that may not hold water. Recent geopolitical shifts, particularly with the return of former U.S. President Donald Trump to the White House in 2024, could significantly alter market dynamics.
Trump’s foreign policy is expected to play a key role in potentially accelerating the resolution of the Ukraine-Russia conflict.
This geopolitical shift could lead to increased oil exports from Russia and Ukraine, contributing to a global oil glut and pushing Brent crude oil prices well below $75, threatening Nigeria’s revenue projections.
Historical trends from S&P Global Platts’ analysis of Brent oil prices around U.S. presidential elections suggest that oil prices may initially decline due to market uncertainties post-election, particularly in the first weeks.
As a new administration approaches inauguration, oil prices tend to recover, driven by expectations of policies that could boost economic growth and energy demand.
However, with Trump’s return which might lead to geopolitical stability, oil markets might still face downward pressure due to increased supply.
Moreover, factors like the Israel-Hamas conflict, OPEC production strategies, and ongoing global inflation could further complicate price movements, making the $75 benchmark highly susceptible to volatility.
Also, Trump has not hidden his desires to pump more U.S. oil. This would significantly affect global oil supply if it happens and lead to lower prices – reducing Nigeria’s revenue.
Considering these dynamics, Nigeria’s reliance on oil revenues faces increased risk, with the potential for lower-than-expected earnings if oil prices falter.
The implications of such a scenario for the country’s fiscal projections are significant, especially in light of current global uncertainties.
Read also: 2025 Budget: N50bn to ensure road projects across 25 Delta LGAs Commissioner
Charting Realistic Path
The bold projections in the MTEF may offer a sense of optimism, but they fail to account for Nigeria’s underlying economic vulnerabilities. Experts stress the need for a more realistic approach to prevent further fiscal challenges.
BusinessDay’s estimate of a real exchange rate at ₦1,498.09/$ is more aligned with market realities and could serve as a reliable benchmark. Similarly, revising the crude oil price assumption to $60–$65 per barrel would provide a buffer against price volatility, reducing the likelihood of unplanned budget revisions.
These adjustments are more than just fiscal measures; they represent a strategic pivot toward sustainable economic planning. Aligning assumptions with global and domestic realities will not only stabilise public finances but also push Nigeria toward reducing its overreliance on oil revenue and strengthening domestic production.
In an unpredictable global economy, robust and pragmatic economic planning is not merely advisable—it is imperative for long-term stability and growth.
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