Dear Subscriber,
2025: Another year, another budget deficit
The Federal Government of Nigeria has proposed a budget of N47.9 trillion ($34.21 billion) for 2025. The budget represents a 36.6% increase relative to the 2024 budget plus supplementary budget (N35.06 trillion). Interestingly, the budget deficit is expected to increase by 42% to N13.08 trillion from N9.18 trillion in 2024.
In the last 30 years, Nigeria has managed to achieve a budget surplus only twice (N1 billion in 1995 and N36 billion in 1996) and a budget deficit for the rest of the period. Keynesian economists believe that when the economic engine sputters, a fiscal deficit or increased government spending can act like fuel injections, revving up demand and production through the multiplier effect.
Despite perpetual deficits, Nigeria has seen limited increases in capital expenditure, private investment, or accelerated economic growth. Nigeria’s budget deficits have only translated into heavy reliance on ways and means advances, which has increased inflation and pushed the country toward unsustainable debt levels (currently at N134 trillion).
Capital budget provision is insufficient to drive sustainable growth.
The 2025 budget is expected to allocate over 65% (N30trn) to recurrent expenditure, and half of this estimate (N15trn) goes for debt service. This leaves just 34% (N16.48 trillion) for capital spending. Low capital formation undermines long-term economic competitiveness. With 70% of Nigerian roads unpaved, a low infrastructure stock of 35%, and electricity access of less than 60%, it will be difficult for Nigeria to drive a sustainable growth agenda with the current level of capital accumulation. Thus, the budget must prioritize capital expenditure and infrastructure development.
The 2025 budget seeks to aggressively mobilize savings and reduce exchange rate misalignment whilst ensuring fiscal consolidation for the hard journey ahead.
In this latest edition of Whispers, the FDC Think Tank takes a deep dive into recent economic developments and their impact on your business and corporate strategy.
Enjoy your read!
