Weaker naira drags FG’s budget to six-year low
Wasiu Alli
Nigeria is aiming to spend a record N47.9 trillion in the 2025 fiscal year in a move to strengthen economic resilience but with a devalued currency, the budget is the lowest since 2020 in dollar terms, according to BusinessDay’s analysis.
The proposed budget is premised on the assumption of an ambitious oil price of $75 per barrel and target production of 2 million barrels per day, but with the prevailing exchange rate of N1, 679 per US dollar, the spending translates to $27.96 billion, a 22.27 percent drop from the 2024 budget of $35.97 billion benchmarked at N800/$1.
However, when the N1,400/$ used to peg the budget is computed, the value of the expenditure amounts to $34.14 billion which is still lower than the 2023 budget of N21.83 trillion at $50.11 billion with an exchange rate of N435.57 to a USD.
The proposed budget targeted at bringing succor for the estimated 129 million poor Nigerians and providing high employment opportunities lags behind 2022’s N17.126 trillion at $39.8 billion with an exchange rate of N410.15 per U.S. dollar.
Taiwo Oyedele, Nigeria’s head of fiscal policy and tax reforms recently said the country is “running on a low budget” compared to its size, emphasizing that meaningful development may be far from achieving.
He stated that while Kenya and South Africa, which are not up to half of Nigeria’s population if combined, spent $32 billion and $130 billion respectively on their citizens, “the narrative of our country cannot be changed by increasing that amount by 5 percent or 10 percent. The base is just too small. It cannot fund our development.”
Meanwhile, Egypt, the largest Arab country with about half the population of Nigeria will be spending $82.89 billion on its citizens in 2025, a fall from $97.41 it budgeted the previous year.
Nigeria’s budget also doesn’t come close to Algeria’s proposed $127.6 billion which is the largest since its independence in 1962. It is however when compared to $113 billion in 2023.
The third largest economy in Africa has just 46 million people but its spending is about four times more than Nigeria with about 23o people.
“In nominal terms, the 2025 budget is the biggest naira value budget in Nigeria’s history. However, in terms of real purchasing power at constant U.S. dollars, this budget is the lowest since 2018,” said Adeola Adenikinju, president of the Nigerian Economic Society (NES).
“This nominally bloated 2025 budget expenditure figure is as a result of high inflation and significant naira depreciation,” Adenikinju added.
Since President Bola Tinubu assumed office last year, he has sparked a raft of reforms from ending the subsidy regime to floating the currency in a bid to make it more market-driven and drive in investors.
But the reforms have led to a steep decline in the currency which has shed over 70 percent of its value since the reforms began last June.
Critics say Nigeria put the cart before the horse by floating the currency before securing significant dollar inflows. The consequences are far reaching for the government, businesses and even households.
Why does dollar comparison matter?
Many critics have argued that Nigeria is a naira-denominated country and shouldn’t be bothered about converting its budgetary spendings in dollar terms.
While this may be partly true, Nigeria’s economic growth is driven by petrodollar and external debt financing, which give rise to high external sector vulnerabilities and debt obligations funded in dollars
“Dollar comparison is necessary in view of the external sector dominance of the Nigerian economy, an import-dependent primary production economy,” the NES said in a recent statement.
Available data shows that between January and October 2023, Nigeria spent 50 percent or $3.07 billion out of its total external inflows of $6.11 billion for external debt service on total external debt of N31.98 trillion (US$41.59 billion) as at Q3 2023.
Total imports were $56 billion against total exports of $60.7 billion. This gives net inflows of $4.7 billion, out of which $3.07 billion were used to service debt by October.
Nigeria’s average government expenditure to GDP ratio dwarfs among peers
A further probe of the proposed spending shows that while total expenditure of N47.9 trillion ($34 billion) in the 2025 budget represents a 64.39 percent nominal increase over the 2024 budget of N28.7 trillion ($31.9 billion) Africa’s fourth largest economy will be spending a paltry 20.52 percent of its GDP at 2023 nominal GDP of N229.912 trillion.
This is lower than South Africa’s 33 percent to GDP with 60.41 million people, Ghana’s 27.5 percent for a country with less than 35 million citizens and Egypt’s 25 percent in the last few years.
A low average government expenditure to GDP ratio means that a country is spending a relatively small proportion of its total economic output on government activities and services. It is a key indicator of how much of the nation’s wealth is being allocated to government functions, including public services, infrastructure, defense, healthcare, education, and welfare.
Higher budget in naira, weaker per capita expenditure
The budget, though the highest the country has seen in naira terms, in per capita measure, each Nigerian is entitled to a pittance of about $148.39 with a $34.14 billion budget next year.
BusinessDay reported that the country’s income per head is at a 20-year low of about $900 but a shrinking budgetary allocation means meaningful development and poverty alleviation might be a dream.
“The U.S. State of California budgeted nearly $300billion for 40 million people for its 2025 budget, translating to annual per capita expenditure of $7,500 per person in and Nigeria is doing $28.18 billion for its 230 million people, to $115.4 expenditure per Nigerian for 2025,” Adenikinju said.
“While we cannot be California overnight, we noted that Nigerians buy petrol, medicals, security, construction and other equipment at the same global market prices as Californians,” he further said.
