Amidst pressure from organized labor, there are signals that the Federal Government (FG) plans to resort to borrowing to implement its salary increase for federal workers in 2024. The Budget Office of the Federation (BOF) has disclosed details in the 2024 FG budget, attributing the escalating deficit to factors such as salary review. The estimated deficit of N9.3 trillion is set to be funded through a combination of domestic and external borrowing, with increased pension obligations and higher debt service costs contributing to the shortfall.
The projected deficit, amounting to 50% of total Federal Government revenues, surpasses the threshold stipulated in the Fiscal Responsibility Act (FRA), standing at 3.88% of Gross Domestic Product (GDP). To justify this breach, an official from the BOF cited a provision in the FRA allowing the government to exceed the 3.0% of GDP limit if national security is at risk.
Looking ahead, the FG’s medium-term expenditure plan outlines a steady rise in the deficit, reaching N10.2 trillion in 2025 and N11.5 trillion in 2026. Concurrently, borrowings are projected to increase from N6.3 trillion in 2023 to N7.8 trillion in 2024, culminating in N10.1 trillion in 2026. This upward trajectory in borrowing is mirrored by a rise in debt service expenditure, from N6.3 trillion in 2023 to N11.6 trillion in 2026.
The proportion of government revenue allocated to debt servicing, which is expected to decrease to 45% in 2024, is anticipated to reverse its trend in 2025, rising to 58%, and further escalating to 65% in 2026.
A concerning aspect of the budget is the allocation for capital expenditure, which not only lags behind debt servicing but also exhibits a notable decline from 2025 onwards. Capital expenditure, as a percentage of non-debt expenditure, remains static at 46% in 2024 before dropping to 42% in 2025 and 2026. When viewed as a percentage of total expenditure, capital expenditure witnesses a continuous decline, falling from 34% in 2023 to 25% in 2026.
Analysts have raised alarms about the fiscal plan, citing an imbalance between rising recurrent expenditure and declining capital expenditure. BudgIT, a fiscal policy monitoring outfit, emphasizes the need for the budget to be realigned in favor of capital expenditure, with a focus on strong infrastructure content to stimulate economic development.
In response to the fiscal constraints, the BOF outlined efforts to address challenges such as weaker-than-expected economic performance and revenue generation issues. The government aims to increase the revenue-to-GDP ratio from less than 10% to 18%, focusing on tax administration and collection efficiency. The goal is to stimulate the economy through regulatory and policy measures while providing safety nets for vulnerable segments of the population. Early budget passage is identified as crucial for achieving macro-fiscal and sectoral objectives.
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