The Federal Government of Nigeria’s budget deficit surged to 7.5 percent of the Gross Domestic Product by August 2024, highlighting a widening gap between government spending and its revenue from taxes and other sources.
This deficit, which results when government expenses outpace earnings, often requires the government to borrow funds to bridge the gap, consequently raising the country’s debt levels.
A member of the Central Bank of Nigeria’s Monetary Policy Committee, Muhammad Abdullahi, emphasized this rising deficit in his personal statement during the committee’s 297th meeting.
His statement was part of a report published on the CBN’s website, which also revealed that Nigeria’s fiscal deficit had escalated to N4.53 trillion in the second quarter of 2024, compared to N3.88 trillion in the first quarter.
Abdullahi noted that this deficit reflects the persistent difficulties the government faces in boosting its revenue, ultimately leading to an increased dependence on borrowing—a situation that may undermine long-term fiscal stability and escalate the national debt.
“The Federal Government’s fiscal operations resulted in a budget deficit of 7.6 per cent of GDP as of August 2024,” Abdullahi said, urging proactive monetary measures to mitigate potential economic consequences, particularly in light of the impending new minimum wage implementation. “Monetary policy must thus remain proactive in dampening the likely consequences of the deficit especially when the implementation of the new minimum wage gains traction.”
Abdullahi further highlighted that efforts to bolster revenue and reduce expenses could help narrow the deficit, leading to a more stable fiscal outlook.
“The narrowing of the fiscal deficit will have positive implications for overall macroeconomic stability,” he added.
A Senior Fellow and Director of the Africa Growth Initiative at the Brookings Institution and fellow MPC member, Aloysius Ordu, also raised concerns over the fiscal deficit, pointing out that the government’s revenue collection fell short of targets, achieving just 37.9 percent of the expected levels.
“A review of the fiscal indicators for the first half of 2024 showed that FGN revenues under-performed, achieving only 37.9 per cent of the target, due largely to the deficit in FAAC receipts,” Ordu remarked.
Despite the revenue shortfall, recurrent spending continued to exceed projections due to high debt service payments, while capital spending lagged.
By mid-2024, the overall fiscal deficit had already exceeded budget expectations by over 85 percent, underscoring the need for spending reforms.
He added, “It also emphasizes the need for the CBN to avoid monetizing the deficit.”
The CBN Deputy Governor of Operations, Emem Usoro, also stressed that the widening fiscal deficit, alongside other economic pressures, poses challenges for price stability in the economy. “Other pressure points for price stability include, the widening fiscal deficit occasioned by fiscal stress from the revenue side, exchange rate fluctuations emanating from seasonal effects and supply constraints, and climatic factors which have exacerbated supply chain disruptions,” Usoro stated.
Lamido Yuguda, the former Director-General of the Securities and Exchange Commission and MPC member, highlighted the challenges in government revenue collection. He observed that, while revenue improved by 33.31 percent compared to the same period in 2023, it still fell 62.10 percent below the target for the period, indicating weak fiscal performance. “From January to June, the retained revenue showed a significant (33.31 per cent) improvement over the corresponding period in 2023, but fell 62.10 per cent short of the target for the period,” he explained, pointing out that the mid-year fiscal deficit had already reached 91.94 percent of the projected level for 2024.
The CBN’s economic report provided further context, showing that the federal government’s revenue for the first six months of the year increased slightly to N2.3 trillion. Although this amount represented a 57.66 percent increase over the first quarter, it still lagged behind the set target by 52.49 percent. This shortfall necessitated a heavy reliance on deficit financing. While devaluation of the naira did generate some foreign exchange revenue, the government’s total expenditure reached N6.83 trillion due to rising interest costs on existing debt. Spending increased by 27.79 percent from the previous quarter, with 89.7 percent allocated to recurrent costs, while capital and transfer payments made up only 3.66 percent and 6.37 percent, respectively.
