Tinubu administration targets N30.6 trillion fiscal deficit in three years*

The Tinubu administration is targeting a combined fiscal deficit of N30.6 trillion between 2024, 2025, and 2026, according to the information contained in the government’s medium-term expenditure framework (MTEF).

The government plans to incur a deficit of N9.04 trillion in its 2024 budget proposal, representing a fiscal deficit to GDP ratio of 3.83%, higher than the 3% threshold stipulated in the Fiscal Responsibility Act (FRA) 2007.

The massive budgetary expenditure of the Tinubu administration continues the tradition of the last 8 years under the Buhari administration, where most budgets were laden with large fiscal deficits.

However, the N9 trillion fiscal deficit projected for 2024 is significantly lower than the N11.6 trillion budgeted in 2023 (5.18% of GDP).

The government explained that the reason for its large deficit is due to salary reviews of federal workers, which is part of an agreement reached with labour unions.

“The high projected level of fiscal deficit in 2024 is partly attributable to the proposed salary review for Federal workers across the board, increased pension obligations resulting from payments into the Redemption Fund, Pension Protection Fund, an increase in pensions in line with the new minimum wage, and higher debt service costs.”

The government also stated that it plans to bring down the deficit to under 3% of GDP within the “medium term,” even though the budget proposal still projects a fiscal deficit to revenue ratio of 3.89% and 3.92% for 2025 and 2026, respectively.

Budget Plans

A breakdown of the budget plans for the three years proposed indicates the government plans budgets of N26 trillion, N27.5 trillion, and N29.4 trillion in 2024, 2025, and 2026, respectively.

However, in terms of revenue, it targets N16.9 trillion, N17.3 trillion, and N17.89 trillion in revenues for 2024, 2025, and 2026, respectively.

This leads to projected deficits of N9 trillion, N10.2 trillion, and N11.4 trillion for the three years, respectively.

According to the government, it plans to finance the deficit via a combination of domestic and external borrowings.

The deficit will primarily be financed by domestic borrowings, given the limited window for external financing.

Specifically, it plans to secure fresh new loans of N7.8 trillion in 2023, which will be comprised of domestic and foreign borrowings of N6 trillion and N1.7 trillion.

It will supplement the balance from privatization proceeds and multilateral project-tied loans of N298.4 billion and N941.1 billion, respectively.

In total, the government plans a combined N26.3 trillion in additional borrowing, which could push Nigeria’s debt profile past the N100 trillion mark by the time this administration concludes its first term.

What this means

The Tinubu administration’s budgetary plan, targeting a combined fiscal deficit of N30.6 trillion over three years, seems to perpetuate the trend of budgetary deficits prevalent over the last eight years under the Buhari administration.

The current budget implementation report for the initial seven months of 2023 indicates a revenue variance of 19.5%.

Given that the government has consistently missed its revenue targets over the past eight years, this new budget plan presents several pivotal questions with far-reaching implications.

Since the government has historically underperformed on its revenue targets, if this pattern persists, the fiscal deficit could be larger than anticipated, intensifying the economic concerns mentioned earlier.

Debt sustainability concerns: A paramount implication is the potential surge in Nigeria’s debt profile. With the government planning additional borrowing of N26.3 trillion, Nigeria’s debt might eclipse the N100 trillion mark.

This poses sustainability concerns, especially if revenue targets continue to be missed.

Substantial domestic borrowing might push out the private sector and strain the country’s foreign reserves, particularly if there’s a need to service external debt or maintain currency stability.

While the fiscal deficits in terms of GDP may seem accommodative, the challenge has always been the impact the debt service has on revenue.

In 2023, the government spent 63% of its N8.8 trillion on debt service of about N5.6 trillion. Budget implementation reports estimate an even higher 97%.

But, while the budget bears a significant deficit, understanding the nature of the expenditure is vital. If it’s allocated to capital projects with a high return on investment, the deficit could be justifiable.

However, recent budget performance indicates underachievement in meeting capital budgetary objectives.

Extensive domestic borrowing can exert upward pressure on interest rates, potentially leading to inflationary pressures, and affecting the borrowing cost for all.

It is also likely that the government could miss its budgetary expenditure targets in 2024. It is currently recording a negative variance of 34.9% as of the first 7 months of the year.