First, a caveat is in order. The complete budget that the Federal Government (FG) is proposing for 2025 is not yet in the public domain, which means a full appraisal cannot be done yet. For now, we have just two things. One, an outstanding and record-breaking figure of N47.9 trillion, announced as the sum that the Federal Executive Council (FEC) approved on Thursday for the proposed federal budget for next year. Two, a three-year budget framework and strategy paper—the 2025 to 2027 Medium Term Expenditure Framework (MTEF)/ Fiscal Strategy Paper (FSP)—which was approved by FEC on Thursday and published on the website of the Budget Office of the Federation on Friday.

Though it provides a fair indication of what is to come, the MTEF/FSP is not as detailed as a budget proposal. Also, the MTEF has to be approved by the National Assembly before the proposed budget can be presented by the president to legislators for consideration. Between the transmission and the approval of the MTEF and the presentation of the proposed budget, many things can change, and indeed certain things do change. So, nothing is cast in stone yet. However, there is enough in the 70-page document to give us some idea about how the mind of the President Bola Ahmed Tinubu administration is working in terms of resource mobilisation and allocation in the next three years. The document also provides a window into budget performance for the whole of 2023 and for the first eight months of 2024. We thus have some reasonable materials that can be used to examine the immediate past and peep into the immediate future.

The MTEF/FSP contains more details than the headline figures that have been splashed in the media on the yet-to-be–unveiled proposed budget. I will share some of these additional details before offering my initial thoughts on the proposed budget and related issues. The document shows that FG intends to allocate the record N47.9 trillion expenditure in this order: N4.26 trillion to statutory transfers (including to the three development commissions recently created for the North West, the South East, and the South West); N13.61 trillion for capital expenditure; N14.21 trillion for non-debt recurrent expenditure; and N15.81 trillion for debt service. FG hopes to fund the budget by raising N34.82 trillion in revenue (N19.60 trillion as oil revenue and N15.22 trillion as non-oil revenue). And it hopes to bridge the N13.08 trillion gap between proposed expenditure and projected revenue through new borrowings of N9.22 trillion, multilateral loans of N3.55 trillion and privatisation proceeds of N312.33 billion.

I am sure some of the issues are jumping out at you already. But we should not get ahead of ourselves. In this preliminary intervention, I intend to make three broad points, drawing on what we can glean from the MTEF/FSP about the performance of previous budgets for the 20 months between January 2023 and August 2024 and what can pass for the visible outlines of the proposed budget for 2025.

The Obsession with Voodoo Projections Continues

Over time, we have developed a penchant for making wild revenue projections. We try to create a form of optical illusion, attempting to mask or minimise our fiscal challenges, and thereby reducing the hallowed activity of budget-making to a farce. But the joke is on us. This is a self-deceit with serious consequences. Because we enjoy lying to ourselves, projected revenues always end up falling short, while expenditure keeps soaring. The ensuring deficits not only exceed allowable limits but have to be plugged with more borrowing, including through unbudgeted, non-transparent and sometimes illegal overdrafts from the central bank.

Let’s be clear upfront: there is nothing wrong with proposing a N48 trillion budget if we can fund it. Given our size and needs, we probably can use double or triple that amount. But budget-making is not wishful thinking. For a start, revenue projections have to be realistic. There is nothing in our recent history to suggest that faithfully implementing a N48 trillion budget is faintly realistic. The approved revenue for the 2024 budget was N25.88 trillion but FG intends to raise N34.82 trillion in 2025. That is a 34.54% increase in revenue in one year. FG is not on track to generating its approved revenue for the current year. According to the MTEF, the Federal Government generated only N12.74 trillion as revenue between January and August this year. If we assume a consistent rate, FG will rake in N19.11 trillion in 2024, which will represent a 26% revenue shortfall of approved revenue. There is N6.2 trillion windfall tax/exchange gain that may do the magic for 2024, but it was presented as a one-off, and as such cannot be the reason for shifting revenue projection from N25.88 trillion to N34.82 trillion between a year and the following one.

But this actually becomes more interesting when you look at the breakdown of the projected revenues. In 2025, FG dreams of raising N19.60 trillion or 56% of its revenues from the oil sector and N15.22 trillion or 43% of total revenues from non-oil sources. On a pro-rata basis, the 2024 oil revenue underperformed by 25%: actual revenue of N4.09 trillion for eight months against pro-rated budget of N5.45 trillion. The total oil revenue expected in the 2024 budget is N8.18 trillion, a target which in all probability would be missed by at least a quarter. If FGN’s records show that oil revenue fell short in the current year, where then is the confidence to project a 140% increase in oil revenue next year gushing out from? Non-oil revenue has given the FG more joy in recent times, consistently outperforming oil revenue since 2020. In 2023, non-oil revenue surpassed budgeted amount by 34% and in the first eight months of 2024, it exceeded the pro-rated budget by 60%. It would have been understandable if the very rosy tint had been tilted towards non-oil revenues.

The curious bigging up of the contribution of the oil sector to government revenues shows up in two other areas. The MTEF projects that N51.87 trillion will accrue to the Main Pool of the Federation Account in 2025. Out of this, N40.42 trillion is projected as Net Oil Revenue (after costs, deductions and derivation). Meanwhile, N16.89 trillion was approved as the net oil revenue for the Federation in 2024, meaning that the net oil revenue for 2025 is expected to increase by 139% over the 2024 figure. There must be something those who made the projection know that is obscured from the rest of us.

The second possible driver of this strange confidence is that Nigeria will produce 2.06 million barrels of oil per day in 2025. This is a good aspiration to have. However, it looks quite dreamy given where we are. Oil production cannot be simply turn on like a light switch. Even if oil theft is completely eliminated, it will take more time to get back up to 2mbpd. But assuming that it is possible, those assuming the additional revenues from the extra barrels may be missing a few points: the fact that JV assets have been transferred to the national oil company in return for dividends on its profit; the thousands of barrels that have been pledged against different loans; and the fact that the private oil companies actually get more share of total oil produced because of the shift in the structure of oil production in Nigeria. In any case, actual oil output has consistently lagged benchmark oil output since 2013, a point well illustrated by Figure 5.2 on page 24 of the MTEF/FSP. Another interesting projection is that inflation which rose to 33.88% in October 2024 will drop to 15.75% in 2025. We need to give a better impression than we are just plugging in numbers that catch our fancy.

The Vicious Cycle of Debt and Debt Service

The debt noose keeps tightening and there appears to be no spirited effort to throw off what has become a millstone around our neck. It is as if we have made peace with our recent lot or that we think we can simply borrow our way out of our fiscal hole. In 2025, FG plans to borrow N12.77 trillion as part of its deficit financing plan: N3.55 trillion in multilateral loans and N9.22 trillion in new borrowings (made up of N7.4 trillion in domestic loans and N1.8 trillion in foreign loans). If we go ahead with the loans, that’s extra layer of debt on the total public debt stock of N134.3 trillion (as at June 2024). And by the way, one of the items approved by FEC on Thursday was another loan of $2.2 billion to finance the 2024 budget that should end in a few weeks. The convenient argument that our debt-to-GDP ratio is still manageable is losing its shine, as our current public debt is more than half our projected nominal GDP of N236.3 trillion for 2024. This is above our self-imposed limit of 40% as debt-GDP ratio.

Besides, the debt-to-GDP metric is of limited utility to a country like ours. Public debts are not paid or serviced with GDP but with government revenues. The quantum of resources devoted to paying and servicing debts has implications for the ability of the government to continue to function and its capacity to meet the developmental needs of the populace. In 2025, a princely sum of N15.81 trillion or about a third of the proposed expenditure of N47.9 trillion is apportioned to debt service alone. In fact, debt service is the biggest line item in the proposed budget for 2025. Said another way: we are budgeting to spend more on servicing debt than on any other group of items in 2025. Debt service is 116% of capital expenditure (N13.61 trillion), amounts to 193% of personnel expenses (N8.19 trillion), and equals 371% of statutory transfers (N4.26 trillion). The proposed debt service for 2025 is also 45% of projected revenue of N34.82 trillion (and it is worth bearing in mind that revenue is likely to underperform while debt service may actually be higher than projected and so the actual percentage will probably be higher).

This last point bears emphasising. In 2023, N8.56 trillion was spent on debt service though the budgeted amount was N6.56 trillion, most likely because of the depreciation of the Naira. Following the same trajectory, sum of N5.51 trillion should have been incurred on debt service between January and August 2024 but N7.41 trillion, or 34% higher than the pro-rated amount, was expended within that period. We are on track to surpassing the N8.27 trillion budgeted for debt service for the whole year (this is apart from N223 billion meant for sinking fund which was not provided for in the first eight months of the year). The point is that the more we borrow, the more resources we will need to devote to paying the principal and the interest in subsequent years. And so, the vicious cycle continues. While a strategy to continue to borrow and spend may appear attractive in the short term, it amounts to hobbling the next generation with a legacy of debts.

Fiscal Expansionism Not Inevitable 

While some citizens and analysts have started querying the rosy assumptions behind the N47.9 trillion budget, some other Nigerians within and outside government will defend the budget. One of the arguments that will be made is that the record amount is just $28.18 billion. When compared with our previous budgets or the budgets of our peers with fewer population, that amount doesn’t look or sound so outrageous. This is fair point. But N47.9 trillion would not have come to $28.2 billion without the floating of the Naira (introduced by the current administration which is also benefitting from it through exchange gain, now a major item at FAAC). Also, concentrating on what the proposed amount exchanges for in dollars might be good for the sake of comparison but it ignores the key points about whether the assumptions are realistic or not, about whether we can fund the budget or not, and about how such a big budget comes with its own baggage.

The argument about the need to accommodate the newly agreed minimum wage and boost infrastructure to drive overall development is more convincing. But the data in the proposed budget does not support 37% increase in budgeted expenditure from one year to another. The MTEF shows that personnel budget is to rise from N5.39 trillion in 2024 to N8.19 trillion in 2025, an increase of N2.8 trillion or 52%. This is presumably to take care of the new minimum wage and other consequential adjustments. But that extra N2.8 trillion for personnel cannot be the reason for the entire N12.84 trillion added to the 2024 budget. Though the document makes a song and dance about increased infrastructure spending, the capital budget (exclusive of transfers) actually reduced slightly from N13.77 trillion in 2024 to N13.61 trillion in 2025. So, it is hard to justify adding so much to the 2024 budget, which itself is unlikely to be fully implemented.

There is a place for ambitious and expansionary budget (especially when the economy is depressed and the country can easily find the money to reflate the economy). But Nigeria is not in that good place. We are battling headline inflation close to 34% and food inflation of about 40%. We are at a place where we need to free Nigerians from suffocating inflation and where we desperately need to keep working towards, not away from, fiscal consolidation. We need to significantly reduce deficit (not just aiming for the 3% of deficit-to-GDP limit mandated by the Fiscal Responsibility Act of 2007) and reduce debts (not binge on debts or be hiding behind some vacuous lingo about sustainable debt).

There are some commendable efforts around blocking leakages and raising more revenues and some of them are yielding decent results already. We should do more of these. We need more fiscal discipline and, more importantly, we need stronger collaboration and coherence between the fiscal and the monetary sides of the economy. One side cannot be busy tightening while the other is needlessly expansionary. Such dissonance is counter-productive, and can only delay the needed rebound.