The Federal Government’s budget deficit has risen to 7.5 per cent of the country’s Gross Domestic Product as of August 2024, reflecting a significant widening of the gap between government revenue and expenditure.
A member of the Central Bank of Nigeria Monetary Policy Committee, Muhammad Abdullahi, disclosed this in his personal statement at the 297th MPC meeting. The document was published on the website of the central bank.
This was as the CBN economic report revealed that Nigeria’s fiscal deficit surged to N4.53tn in the second quarter of 2024, up from N3.88tn in the previous quarter.
In simple terms, a fiscal deficit happens when a government’s spending exceeds its revenue from taxes and other sources. It means the government is spending more money than it’s bringing in.
To cover this gap, the government often borrows money, which can lead to an increase in public debt.
Abdullahi said this development underscores the ongoing challenges the government faces in enhancing its revenue generation efforts.
It also signals a greater reliance on borrowing to finance the growing expenditure, raising concerns about the long-term fiscal sustainability and potential impacts on national debt levels.
Highlighting the challenges posed by the situation, the MPC member stated that the committee must remain proactive in dampening the likely consequences of the deficit, especially with the commencement of the new minimum wage payment.
He said, “The Federal Government’s fiscal operations resulted in a budget deficit of 7.6 per cent of GDP as of August 2024.
“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.”
“The deficit could, however, narrow as ongoing efforts to enhance revenue generation and reduce government expenditure are expected to improve the fiscal outlook.
“The narrowing of the fiscal deficit will have positive implications for overall macroeconomic stability.”
Similarly, Senior Fellow and Director of the Africa Growth Initiative at the Brookings Institution and member of the Central Bank of Nigeria Monetary Policy Committee, Aloysius Ordu, while expressing his views on fiscal policy, stated that challenges abound that are at odds with the CBN’s firm anti-inflationary stance.
“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.
“Recurrent spending exceeded targets, largely due to debt service payments, while spending on the capital account continued to underperform. As of mid-2024, the overall fiscal deficit exceeded budget projections by over 85 per cent, emphasizing the need to re-prioritize spending in favour of much-needed capital projects. It also emphasizes the need for the CBN to avoid monetizing the deficit,” he stated.
Also, the Deputy Governor for Operations at the Central Bank of Nigeria, and member of the Central Bank of Nigeria Monetary Policy Committee, Emem Usoro, emphasised that “other pressure points 20 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.”
Also speaking on the issue of revenue generation, the immediate past Director-General of the Securities and Exchange Commission and member of the Central Bank of Nigeria Monetary Policy Committee, Lamido Yuguda, stated that revenue generation remains a daunting challenge for the FGN.
“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.”
“This low revenue base underscores the poor fiscal performance in the period, as provisional numbers show that the level of fiscal deficit at mid-year (January to June 2024) is already 91.94 per cent of the projected amount for 2024,’ he concluded.
In the economic report, the CBN said the deficit in the first six months saw a notable rise, and the federal government’s revenue remittance increased only marginally to N2.3tn.
This figure represents a 57.66 per cent increase from the first quarter but still falls 52.49 per cent short of the target for the period, prompting a heavy reliance on deficit financing.
The report also highlights that while the government gains from foreign exchange revenue due to naira devaluation, its overall expenditure expanded significantly to N6.83tn, driven largely by high-interest payments on loans and other financial obligations.
This marks a 27.79 per cent increase from the previous quarter, with recurrent expenditures dominating the spending.
The data shows that 89.7 per cent of the federal government’s expenditure was on recurrent costs, while capital and transfer payments accounted for just 3.66 per cent and 6.37 per cent, respectively.