Nigeria’s Budget Deficit to Exceed N9.1Trn – Economic Report
Nigeria is expected to exceed 2024 budget deficit, analysts said in a mid-year report, noting that fluctuating oil prices and production disruptions could lead to revenue volatility, making it difficult for the government to effectively plan and budget.
Major revenue source, hydrocarbon sale, has been hindered by underperformed oil output which continues to trail expectation set in the budget, creating revenue gap. The Federal Government passed a N6.2 trillion supplementary budget to the National assembly for approval to bridge the gap between revenue expectation and huge spending plan for the year.
Details from the supplementary budget showed that government plan N3.2 trillion for capital expenditure and N3 trillion to finance non-debt recurrent expenditure.
The amount is expected to be financed by 70% windfall tax on bank’s FX gain in 2023, a development that has attracted mixed reactions from stakeholders. “It is likely that the FGN exceeds it fiscal deficit of N9.1 trillion in 2024”, Coronation Research said.
Fiscal sustainability remains a significant concern, with public debt reaching N121.6 trillion, driven by naira devaluation and increased domestic borrowing, Coronation Research said in its mid-year economic report.
The firm said the burden of this debt, alongside tightening global financial conditions, may constrain fiscal space and limit the government’s ability to drive economic recovery through public investment.
As such, analysts maintain that the private sector will play a crucial role in sustaining growth, particularly through targeted investments in sectors with high growth potential, such as technology, renewable energy, and value-added agriculture.
Although Nigeria’s macroeconomic environment in H2 2024 is fraught with risks, there are opportunities for those who can navigate the complexities with foresight and agility, Coronation Research said.
“The key will be in maintaining a delicate balance between seizing opportunities for growth and managing the inherent risks that come with a volatile macroeconomic landscape”.
“We expect the FGN to exceed its 2024 budget deficit of N9.1trn. Given that the International capital market remains expensive for emerging economies like Nigeria, we expect domestic issuances to exceed projected FGN estimates. Overall, we expect fixed income yield to remain elevated in 2024”, the firm said..
It said for the second half of 2024, Nigeria’s economic landscape presents a mix of challenges and strategic opportunities that demand careful navigation.
Nigeria’s gross domestic product rose 3.19% in the second quarter of 2024 despite persistent structural issues plaguing the economy. High inflation, currently above 30%, continues to erode consumer purchasing power, suppress demand, and dampen overall economic productivity, analysts said.
“This, combined with the volatility of the naira has compounded the challenges facing the private sector, particularly in managing costs and maintaining profitability.
“However, there are sectors that provide some optimism. The oil sector has shown signs of recovery over the past two quarters, and we expect this trend to continue as reforms in the sector take deeper root.
“If managed properly, the oil sector could drive modest GDP growth, with our projection for Q2 2024 at 3% y/y, and a revised full year forecast of 3.2%”, Coronation stated.
Analysts however added that the outlook is contingent on sustained improvements in oil production and the successful execution of sectoral reforms.
Inflation will likely remain elevated, driven by the pass-through effects of currency depreciation, supply chain disruptions, and persistent structural inefficiencies, the report stated.
Fiscal Analysis
The 2024 FGN Budget, titled “Budget of Renewed Hope,” was signed by President Bola Ahmed Tinubu on 02 January 2024. There were a few revisions made after, analysts said.
The aggregate expenditure is estimated at N28.7 trillion which is 11.9% or N1.2 trillion higher than the initially proposed N27.5 trillion. Coronation Research said the figure is 15.9% higher than the 2023 FGN budget of N24.82 trillion.
Notably, the allocation to capital expenditure in the approved 2024 budget rose by 13.8% to N9.9 trillion, accounting for 34.5% of the total expenditure, compared to the initial proposed figure of N8.7 trillion, the firm explained in the mid-year economic report.
Analysts said the increased capital spending aligns with the FGN’s intent to reduce the country’s infrastructure deficit gap.
“We note that the 2024 budget estimates point towards a fiscal deficit of N9.1 trillion is considerably lower than N13.8 trillion estimated in the 2023 FGN budget”. Nigeria’s estimated revenue to fund the 2024 budget was revised upward to N19.6 trillion, 78.2% higher than the 2023 provision of N11 trillion.
According to Coronation Research, the breakdown of this revenue estimate shows that N9.2 trillion (46.9%) is expected from oil-related sources while the balance of N10.4 trillion (53.1%) is expected from non-oil sources.
Overall, the revenue projections point towards expectations of improved revenue inflow, on the back of the removal of PMS subsidy, fx depreciation following the fx liberalization policy, and increased collection of non-oil taxes.
Experts said in the mid-year economic report that achieving the proposed revenue target in 2024 would require deliberate efforts towards tackling the challenges in the oil sector.
Average oil production from January – November 2023 was 1.46 million barrels per day (mbpd) which is below the FGN 2023 oil production target of 1.72mbpd, according to Coronation Research.
The report highlighted that actual non-oil revenue has exceeded FGN’s target by an average of 9.4% since 2021.
Additionally, as at the end of September 2023, analysts said they note an over performance of nonoil revenue, which reached N2.5 trillion, exceeding the prorated target of N1.8 trillion.
“We expect the FGN to increase its tax mobilization initiatives and further enhance independent revenue generation and collection efforts, especially from government-owned enterprises (GOEs).
“The proposed fiscal deficit of N9.1 trillion is expected to be financed by new borrowings totaling about N7.8 trillion. Other sources of deficit financing include privatization proceeds of about N298.4 billion and drawdowns on bilateral/multilateral projects/programs of about N941.1 billion. #Nigeria’s Budget Deficit to Exceed N9.1Trn – Economic Report
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