Federal Government of Nigeria’s 2025 Budget of Restoration:

Expected Expenditure 
 

FGN’s proposed expenditure of ₦49.74 trillion, represents a 42% increase from the 2024 amended budget of ₦35.1 trillion. Whilst the increase is significant in nominal terms, the proposed spending is less than the 2024 amended budget in real terms. That is, using the budgeted exchange rates of ₦800/US$1 and ₦1,500/US$1 for the 2024 and 2025 fiscal years, the budgeted spending for 2024 and 2025 fiscal years are US$43.9 billion and US$33.2 billion, respectively.  

Key items contributing to the total proposed expenditure are statutory transfer (9%), recurrent expenditure (28%), debt servicing (32%) and capital expenditure (30%). Of note is the amount earmarked for debt servicing and recurrent expenditure, which added together makeup ₦30.45 trillion (i.e., 61% of the total expenditure). If you consider that the expected revenue is ₦36.35 trillion, it will mean that almost the entire revenue generated by the FGN in 2025 will be used to cover debt servicing and recurrent expenditure. 

Other matters of note are the allocations to the sectors, with the largest allocation going to defence and security, perhaps indicating the size of work still required to bring sustained peace to the country. Other sectors with large allocations are infrastructure, education, and healthcare.

Expected Revenue

The expected revenue increased from ₦25.9 trillion in 2024 to ₦36.35 trillion in 2025. Similar with the analysis done on the proposed expenditure, the budgeted revenue for the 2024 and 2025 fiscal years are US$32.3 billion and US$24.2 billion, respectively, representing a 24.5% reduction in real terms. 

Whilst not highlighted in the President’s speech, the 2025-2027 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEFFS), approved by the Ministry of Budget and National Planning, indicates 56.3% of the expected revenue will come from oil sources, while 43.7% will come from non-oil sources. The expected revenue from oil sources is tied to the three variables of production quantity of 2.06 mbpd, oil price of US$75 per barrel, and exchange rate of ₦1,500/US$1, whilst the expected revenue from non-oil sources is driven largely by tax revenues. 

The optimist projection may be attributable to major legislative reforms around taxation and the potential investment gains expected from the onshore, shallow water and deep offshore fiscal incentive orders. However, given the existing contentions around the Tax Bills and the average 2024 oil production level of 1.49 mbpd, the optimism may be questionable.

Key Assumptions

The Budget is supported by the underlying assumptions of gross domestic product (GDP) growth rate, inflation rate, foreign exchange rate, oil price per barrel and volume of oil production per day. These are highlighted below: 

a.)   GDP growth rate: This is projected to grow by 3.68%, a modest reduction from the 3.76% projection in 2024. If the third quarter numbers published by the National Bureau of Statistics are anything to go by, where GDP growth rate is 3.46%, then the FGN growth rate could be achieved, particularly with effective implementation of the Budget.  

b.)   Foreign exchange rate: This is projected to stabilize around the ₦1,500/US$1 mark for the 2025 fiscal year. This is a realistic target if we consider that the current Central Bank of Nigeria’s published rates for December 2024 average ₦1,559/US$1. Whilst some will argue that the significant diaspora remittances have helped these rates during the year-end holidays, there seems to be optimism considering the expected reduction in the requirement for US$ to import refined petroleum products and the potential increase in oil and non-oil exports. 

c.)   Inflation rate: This is projected to decline from an average of 33% in 2024 to 15% in 2025. A trend analysis of inflation levels and a realistic analysis of the economic fundamentals suggest that a 15% inflation is overly ambitious and may be unachievable. 

d.)   Oil price: The projected oil price per barrel of US$75 appears realistic considering previous trends. However, suppose the statements by the incoming US administration are anything to go by, where oil production is expected to increase. In that case, we might witness a supply glut and a consequent drop in the oil price. 

e.)   Oil production: The projected oil output of 2.06 mbpd seems unrealistic if you look at the recent trend of projection versus actual output, with the 2024 fiscal year being a case in point where the budget projection was 1.78 mbpd but the average output was 1.50 mbpd (refer to the published data for January to July 2024 by the Nigerian Upstream Petroleum Regulatory Commission).

Conclusion

It would seem the FGN has great ambitions for progressively raising revenue and has also made its desire to spend on critical sectors known. While this is welcome and necessary, the projected indices do not seem to conform with prevailing or reasonably objective projections for the future. With inflation currently at 34.6%, it is not certain how the FGN will achieve a 15% inflation rate.

Though the government has in place fiscal incentives to boost oil production, it may be difficult for some to share the same level of optimism as the FGN, given the peculiarity of the Nigerian economic landscape. However, the reasonably conservative yet optimistic exchange rate of ₦1,500 to the dollar might be more realistic, considering the expected drop in the pressure for dollars to source refined petroleum products particularly as it relates to trade and investment.