Nigeria’s Fiscal Deficit Shrinks by 29% to N2.82 Trillion.
Nigeria’s budget deficit has decreased by 29% from N3.96 trillion in the first quarter of 2023 to N2.83 trillion in the first quarter of 2024, as the federal government looks to banks’ realized foreign exchange gains to boost revenue. This reduction comes at a time when the country is grappling with the economic impact of a significant depreciation of the naira and the removal of petrol subsidies.
The decline in the deficit is seen as a positive sign for Nigeria’s economic health, allowing the government to potentially increase spending on capital projects and human capital development, both of which are essential for driving economic growth, creating jobs, and reducing poverty.
The Central Bank of Nigeria (CBN) reported that the country’s revenue in Q1 2024 increased to N1.76 trillion from N1.32 trillion in the same period in 2023, while expenditures stood at N1.53 trillion. This improvement in revenue has been partly attributed to the introduction of a one-off 50% windfall tax on Nigerian banks’ foreign-currency revaluation profits, which was announced in July 2024 and later increased by the Senate to 70%. The tax is aimed at raising funds for infrastructure and other critical government spending.
Despite the reduced deficit, experts caution that the government’s rising expenditure plans, driven by increased workers’ wages and elevated debt servicing costs, may outpace revenue gains. As a result, the Federal Government of Nigeria (FGN) is expected to continue operating at a deficit in subsequent quarters.
Analysts from FBN Quest note that while the windfall tax on banks’ forex revaluation gains and improved crude oil production could potentially boost government revenues, the long-term sustainability of these gains remains uncertain. The oil sector, which has been plagued by insecurity, low investment, and the exit of international oil companies (IOCs), continues to struggle, which poses challenges for the government’s revenue projections.
The economic environment in Nigeria remains volatile, with the naira’s value continuing to decline following the CBN’s decision to merge all segments of the FX market into the Investors and Exporters window. This depreciation has had a significant impact on both the cost of living and the government’s fiscal operations.
In response to these challenges, the government has introduced various fiscal measures, including the Accelerated Stabilisation and Advancement Plan, which outlines spending up to N5.4 trillion on petrol subsidies in 2024. However, the plan has been met with skepticism, with officials noting that it is still under review and has not been officially adopted.
Overall, while the reduction in Nigeria’s fiscal deficit is a positive development, the country faces significant challenges in maintaining fiscal stability and driving economic growth in the face of ongoing economic pressures.
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