Warning by the Senate of the Federal Republic of Nigeria to Nigerians not to expect the passage of the 2025 budget before January 31, 2025 aptly foretells the uncertainty and gloom that will mark the country’s 2025 economic outlook. Chairman, Senate Committee on Media and Publicity, Yemi Adaramodu, said in Abuja that the joint committee of the Senate and House of Representatives on Appropriation would start meeting on January 7, 2025 to take budget defense by heads of Ministries, Departments and Agencies (MDAs).

He said the earliest the outcome of the joint committee work would be presented for consideration by the Senate would be January 31, 2025. President Bola Ahmed Tinubu presented the 2025 Appropriation Bill to a joint session of the National Assembly on Wednesday, December 18, 2024; exactly two weeks to the end of the year. This is contrary to the Fiscal Responsibility Act (FRA) 2007 which stipulates that the Appropriation Bill shall be presented by the President to the National Assembly not later than September 30th of each year.

This late presentation of the national budget by Mr. President connotes the country’s relapse into distorted and uncertain budget cycle, contrary to the regular January to December fiscal year. A national budget is a crucial comprehensive financial plan which outlines a country’s projected income (revenue) and expenses (expenditures) over a fiscal year.

A national budget plays a critical role in shaping a country’s economic policies, allocating resources and promoting sustainable economic growth. It will usually contain the fiscal planning, providing for infrastructural development, debt management (borrowing, repayment, and debt servicing); projecting inflation, interest rates, crude oil production and price levels.

In all jurisdictions, the existence of the national budget makes for transparency and accountability in government spending, ensuring that funds are used efficiently and effectively. Therefore, for each fiscal year, it is the running budget that provides the guide and direction of socio-economic progress or otherwise of the nation.

As it were for Nigeria, that the ‘life’ of the 2024 budget is being extended to some months into 2025 clearly shows the dangers ahead. The socio-political and economic factors at play in 2024 are not necessarily the same for 2025; which is why the budget assumptions for 2025 are markedly different from those of the previous years.

The 2024 budget assumed an inflation rate of 21 per cent; but all through the year, hyperinflationary trend persisted—such that by end-November 2024, the rate stood at 34.6 per cent. Most disturbingly, rather than the Government making an assumption for 2025 in tandem with the spiking inflation rate trend, its 2025 budget proposal carries an utterly unrealistic assumed inflation rate of 15 per cent!

This inflation rate (15 per cent) presents the entire 2025 budget proposal as being built on faulty foundation. This is because more than ever before, the factors driving the high inflationary trend remain very potent. Food scarcity/insecurity in Nigeria is yet at its worst: leading to over 40 per cent food inflation for several consecutive months this year.

Imported inflation also remains active, essentially because of the crashing of the Naira in the foreign exchange (FX) market. The more the quantum of the local currency deployed to procuring the dollar for importation of raw materials, machineries and other inputs, the more costly the finished products—locally. This is a cost-push factor.

The fiscal operations of the Government as well as a huge ‘informal’ economy also lead to so much money in circulation—a lot outside the financial system. This obviously remains one of the core drivers of the high inflationary trend in the economy. In part, this account for why the fight against high inflation by the Central Bank of Nigeria (CBN), using hikes in the Monetary Policy Rate (MPR) has yielded little or no results.

Again, on the part of the Government, it is also too hypothetical to project that crude oil production in 2025 will stand at 2.06 million barrels per day (mbpd). In reality, Nigeria in several years has not been able to hit oil production level of 1.5 mbpd. Indeed, the 2024 budget is based on 1.78 mbpd production level—but has never been achieved.

Given what has been happening in the oil and gas sector in Nigeria (and globally) in recent times, it is overly ambitious/optimistic to attain such a huge jump in oil production volume. Raging oil theft, pervasive pipeline vandalism, massive organized sabotage, coupled with energy transition that has seen most International Oil Companies (IOCs) leaving Nigeria in droves—all pose deadly threats to the sector. 

According to the Organization of Petroleum Exporting Countries (OPEC), Nigeria’s crude oil production level which stood at 1.4 mbpd in October 2024, only inched up to 1.41 mbpd in November. It is therefore rather otiose or whimsical for the Government to propose the 2025 budget based on an oil production level of 2.06mbpd.

It also beats the imagination as to how the Federal Government arrived at using an exchange rate of N1500 to the US dollar as basis for the 2025 budget. This is as against the subsisting exchange rate of about N1700/$; and which is very likely to deteriorate further in the months ahead.

Indeed, a reputable investment and research company—Afrinvest—in its latest study, has projected that the Naira will depreciate to N1804/$ at the official window of the FX market in 2025. Afrinvest said that it anticipates “that exchange rate volatility would persist in 2025, albeit at a modest pace. Our prognosis is hinged on the belief that the CBN would be constrained from adequately meeting market demand on a consistent basis, as the recent FX reserves accretion was largely driven by inflows from inorganic sources, including those with stringent conditions on usability.”

Afrinvet’s report titled “Beyond the Rhetoric: Transforming Reforms to Tangibles,” detailed a number of factors that could drive the anticipated decline of Naira in the FX market. In this regard it needs be noted that a chunk of the FX reserves is majorly inflow from Foreign Portfolio Investors (FDIs), drawdowns on foreign loans and proceeds of dollar bonds.

The much anticipated rise in oil proceeds is yet to materialize due to the scorching constraints facing the sector; non-oil export is also not experiencing a boom yet. Neither is much coming into Nigeria via Foreign Direct Investment (FDI)—owing to the obviously uncompetitive business environment. No wonder, Nigeria has been witnessing an exodus of many blue chip companies.

Continued dissonance over some critical policies will certainly put a drag on the economy in 2025, and thereafter. Specifically, President Tinubu’s hard stance on the Tax Reform Bills already before the National Assembly is opposed to inclusivity and negotiation. A number of critical stakeholders have called for the withdrawal of those Bills for more consultations and deliberations: the National Economic Council (NEC), Nigeria Governors’ Forum (NGF) and several geo-political groups, to name a few. 

Without a doubt, whatever becomes of those Bills stand to rub off positively or otherwise on the Nigerian economy in 2025 and beyond. Unfortunately, Mr. President’s pronouncement on those Bills during his maiden media chat recently amounted to foreclosure of further discussions on them. Even if the Bills end up being forced down the throat of economic agents, there could be massive hidden resistance to realizing their intendments.  

On the background of all these is the existential threat posed by insecurity in the land. Although the insecurity in the country is shrouded in propaganda, in reality the fragile situation is a serious counterpoise to meaningful investment drive. In all climes, security of life and property is a prerequisite for FDIs and other investment inflows.

In all, it will take something like a miracle for the Nigerian economy to make any appreciable progress in 2025, given the factors analyzed above. In particular, the ‘faulty’ foundation of the 2025 budget makes it prone to a multiplicity of pitfalls. It’s all a leap in the dark!

The author, Okeke, a practicing Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, lives in Lekki, Lagos.