FGs spending surge widens budget deficit to N4.53tr

As of August 2024, Nigeria’s budget deficit has expanded to 7.5% of the country’s GDP, underscoring a sharp increase in the gap between government spending and revenue. The trend was stressed by Central Bank of Nigeria (CBN) Monetary Policy Committee member Muhammad Abdullahi in his statement at the committee’s 297th meeting, available on the central bank’s website.

A recent CBN economic report further revealed that the nation’s fiscal deficit climbed to N4.53 trillion in the second quarter of 2024, up from N3.88 trillion in the previous quarter. A fiscal deficit occurs when government expenditures surpass its revenues, often leading to increased borrowing and potential long-term debt concerns. According to Abdullahi, this rising deficit emphasises the need for enhanced revenue generation efforts and fiscal sustainability.

The report also addressed the influence of rising recurrent costs and the new minimum wage implementation on Nigeria’s fiscal stability. Abdullahi stated that proactive monetary policy is essential to mitigate the impacts of the growing deficit, noting, “The Federal Government’s fiscal operations resulted in a budget deficit of 7.6% of GDP as of August 2024. Monetary policy must thus remain proactive in dampening the likely consequences of the deficit, especially as the new minimum wage gains traction.”

In agreement, Aloysius Ordu, a CBN MPC member and Senior Fellow at the Brookings Institution, noted that as of mid-2024, federal revenues had achieved only 37.9% of the target due to reduced FAAC receipts, while recurrent spending exceeded projections, largely driven by debt servicing. He stressed the need to prioritise capital expenditures and avoid monetizing the deficit.

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Ordu pointed to a fiscal deficit exceeding projections by over 85% by mid-2024, underscoring the need to refocus spending on essential capital projects.

Another MPC member, Emem Usoro, added that Nigeria’s widening fiscal deficit, currency fluctuations, and climate factors all add pressure on price stability and revenue generation.

Former SEC Director-General and MPC member Lamido Yuguda echoed the challenge, citing that retained revenue, although improved by 33.31% over the first half of 2023, still fell 62.1% short of the target for 2024, with the fiscal deficit at mid-year already at 91.94% of the projected amount for the yea

The CBN report indicated a continued reliance on deficit financing as government revenues remain below target, with expenditures significantly increased due to high-interest payments. Government spending rose by 27.79% from the previous quarter to N6.83 trillion, with recurrent expenditures constituting 89.7% of total spending. In contrast, capital expenditures and transfers represented just 3.66% and 6.37%, respectively, reflecting a spending imbalance heavily weighted towards recurrent costs.