- Revenue drops by 53% in second quarter
The Federal Government’s fiscal deficit has ballooned to a staggering N4.5trn in the first half of 2024, as detailed in recent data released by the Central Bank of Nigeria.
This growing deficit, largely attributed to higher interest rates and a sharp shortfall in revenue, underscores the growing challenges facing Nigeria’s fiscal management in the current economic climate.
On January 1, 2024, President Bola Tinubu signed the 2024 Appropriation Bill into law at the Presidential Villa in Abuja.
The N28.7trn budget, which represented a N1.2trn increase over the initial proposal he presented to the National Assembly in November 2023, was designed to address critical infrastructural needs, enhance security, and drive economic growth.
However, the country’s fiscal operations over the first six months of the year have reflected a far less optimistic picture.
Despite the optimistic outlook presented in the national budget, government revenue has significantly underperformed.
The CBN’s second-quarter economic report highlights a notable decline in revenue relative to expectations, with the Federal Government retained revenue in Q2 2024 amounting to just N2.30trn—a figure that, while 57.66% higher than the previous quarter, still falls 52.94 per cent short of the government’s target for the period.
This revenue shortfall is compounded by a growing interest burden, driven by Nigeria’s high borrowing costs amid global interest rate hikes.
Government expenditure soared to N6.83trn in Q2 2024, marking a 27.79 per cent increase from the previous quarter, but still 4.94 per cent below the projected spending target of N7.19trn for the quarter.
A significant portion of the government’s expenditure, approximately 89.97 per cent, was allocated to recurrent spending—primarily for interest payments, wages, and ongoing operational costs—leaving only 3.66 per cent for capital projects and 6.37% for transfers.
As a result, the government’s overall fiscal deficit reached N4.53trn by the end of Q2 2024, up from N3.88trn in the first quarter of the year.
This rise in the fiscal deficit reflects a worsening of the revenue-expenditure imbalance, with interest payments and low revenue generation combined to push the deficit to unsustainable levels.
Notably, the government’s primary deficit, which excludes interest payments, has shown a slight improvement.
The CBN report stated that the primary deficit narrowed to N900bn in Q2 2024, a significant reduction from N1.61trn in the first quarter of the year.
This reduction was attributed to a lower-than-expected capital expenditure, with the government scaling back its investments in infrastructure and development projects due to the ongoing revenue shortfalls.
Despite this improvement in the primary deficit, the broader fiscal situation remains concerning.
As President Tinubu’s administration continues to grapple with these fiscal pressures, experts have said that the government would continue to rely heavily on borrowings to bridge the gap.
In his budget presentation for 2024, President Tinubu had projected a budget deficit of N9.18trn for the fiscal year, down from the N13.78trn recorded in 2023.
He had outlined plans to finance the deficit through a mix of new borrowings totaling N7.83trn, N298.49bn from privatization proceeds, and N1.05 trn in drawdowns on multilateral and bilateral loans designated for specific developmental projects.
Experts also said the widening deficit and persistent revenue shortfall raise important questions about the sustainability of Nigeria’s fiscal path, especially as the global economic environment continues to evolve with high interest rates.
The Registrar of the Chartered Institute of Finance and Control of Nigeria, Godwin Eohoi said to meet its fiscal targets, the government will need to implement aggressive reforms to boost non-oil revenues, reduce inefficiencies in expenditure, and possibly restructure some of its debt obligations.
Additionally, he said the emphasis on interest payments, which are projected to continue increasing in line with higher borrowing costs, will likely limit the scope for meaningful capital investments in key sectors such as infrastructure, healthcare, and education.
He said, “As the government continues to manage its fiscal affairs amid these challenges, the country could face even higher borrowing costs and increased pressure on the naira, making it essential for policymakers to find ways to reduce the deficit without sacrificing much-needed investments in national development.”
