Gloomy growth outlook looms over 2024 budget

…as funding crisis hits capital expenditure

There is a reduced focus on infrastructure investment in favour of recurrent expenditure and debt servicing in Nigeria’s budgetary allocations in recent times, with unhealthy implications for economic growth and development, Business Hallmark has observed.

Even the removal of petrol and electricity subsidies, unification of foreign exchange windows among other reforms of the President Bola Tinubu administration aimed at bolstering government revenues to curtail reliance on loans do not promise a difference anytime soon.

Little wonder the Federal Government plans to allocate a significant portion of its budget to debt servicing between 2025 and 2927, outpacing allocation for capital expenditure.

This is based on the recently approved 2025–2027 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP), which projects debt servicing cost at N50.39 trillion, surpassing the N48.93 trillion earmarked for capital expenditures.

The rising debt servicing costs, which are expected to grow by 26.7 percent from N15.38 trillion in 2025 to N19.49 trillion in 2027 are raising fiscal sustainability concerns.

The Federal Executive Council (FEC), last week approved the Medium-Term Expenditure Framework for 2025-2027 with a proposed budget of N47.9 trillion for the year 2025.

“The budget size approved for presentation to the National Assembly in the MTEF is N47.9 trillion, with new borrowings of N9.22 trillion to finance the budget deficit in 2025. We aim to sustain the commendable market deregulation of petroleum prices and the exchange rate, compel the Nigerian National Petroleum Company Limited to significantly lower its oil and gas production costs, and potentially amend relevant sections of the Petroleum Industry Act 2021 to address key risks to the federation”, Minister of Budget and Economic Planning, Atiku Bagudu, had disclosed while briefing State House correspondents.

Shift in expenditure

Business Hallmark observed that despite the government operating four budgets concurrently, Nigeria’s capital expenditure (CAPEX) for the first half of 2024 declined by 2.3 per cent to N1.99tn, down from N2.68tn in the corresponding period last year.

An analysis of data from the Central Bank of Nigeria’s (CBN) statistical bulletin shows a shift in spending priorities towards recurrent costs and debt servicing, raising concerns over the long-term impact on economic development.

A month-by-month comparison reveals inconsistent spending patterns in 2024. CAPEX began with zero allocation in January 2024, compared to N379.1bn in January 2023, suggesting a sluggish start to the fiscal year.

Spending peaked in February 2024 with N893.9bn, representing a significant increase from the previous month but still only 36.3 per cent higher than February 2023’s N656.3bn.

However, CAPEX dropped sharply in March 2024 to N258.6bn, reflecting a 65 per cent decline from February 2024 and a 66.1 per cent decrease compared to March 2023’s N763.6bn.

In April 2024, capital spending amounted to just N42.1bn, marking a 36 per cent drop from the N64.5bn spent in April 2023. The months of May and June 2024 showed some recovery, with CAPEX rising to N478.9bn and N325.4bn, respectively.

However, these figures remained below the corresponding months of 2023, when N300bn and N513.3bn were allocated, highlighting a consistent downward trend.

The uneven monthly spending reflects growing fiscal constraints as the government grapples with rising debt obligations and recurrent expenditures.

Capital expenditure represented about 53.35 per cent of the N3.73tn retained revenue in H1 2024, a drop from the 96.06 per cent share in H1 2023, pointing to a reduced focus on infrastructure investment, which may constrain economic growth and job creation.

Meanwhile, total government expenditure rose by 29.5 per cent from N9.39tn in H1 2023 to N12.17tn in H1 2024, driven largely by recurrent spending. Recurrent expenditure surged by 51.4 per cent, climbing to N10.17tn in H1 2024 from N6.72tn in H1 2023.

Of this, 68.2 per cent was allocated to debt servicing, which soared by 68.8 per cent, reaching N6.04tn compared to N3.58tn a year earlier. Personnel costs also increased by 17.6 per cent to N2.32tn, further squeezing funds available for capital projects. This is not likely to abate anytime soon.

Nigeria’s total debt on Thursday hit an all-time high of N136 trillion, following approval by the Senate of N1.77 trillion (approximately $2.2bn) fresh external borrowing plan in support of the 2024 budget.

During the period in review, debt servicing will consume 34.06% of total annual expenditure, while capital expenditure growth remains sluggish, increasing by only 0.18% from N16.48 trillion in 2025 to N16.51 trillion in 2027.

A detailed analysis of the fiscal projections reveals that in 2025, it is anticipated that capital expenditure will represent 34.44% of the overall budget, a figure that slightly surpasses the 32.11% dedicated to servicing existing debt.

However, the outlook for 2027 paints a different picture. Debt servicing is expected to escalate sharply, consuming 37.2% of the total expenditure. In contrast, the share allocated for capital projects is projected to decrease to 31.51%.

Discordant tones

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 reacting to the rising debt profile, the Director of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, criticised the increasing debt burden, citing insufficient revenue capacity and ongoing infrastructural deficits as major concerns.

Meanwhile, former Vice President Atiku Abubakar has expressed worries over recent report released by the World Bank, showing Nigeria as the third most indebted country to the International Development Association (IDA), describing it as very concerning.

“Tinubu had, in July this year, boasted that the FIRS and Customs under his watch have collected all-time high revenues to finance the Budget. Why then are they still borrowing?…Atiku queried in a statement.

“There is something that they are not telling Nigerians, even as they are being crushed by a combination of their failed trial-and-error policies and loan rackets.

“These Tinubu’s loans are bone-crushing to Nigerians and bringing insufferable pressure on the economy, especially when they are not properly negotiated and utilised.

“It is concerning that the voracious appetite for these humongous loans is powered by corruption and not for infrastructure and development needs. A report by Budgit, a budget watchdog, has disclosed that the 2024 Budget is a mess because of the level of pork associated with it.”

However, the Senator representing Ondo South senatorial district, Senator Jimoh Ibrahim believes the amount intended to be borrowed is too insignificant for any progress to be made in the economy.

Ibrahim said, “Nigeria, as a developing country has about 50 per cent of debt to GDP which is too low because developed countries like the United Kingdom have 95 per cent and the US has 103 per cent. Also Dubai borrowed about $160bn to develop infrastructure and the country now is one of the biggest tourist destinations

“Therefore, for me, Nigeria needs to borrow more to develop infrastructure because about $2 billion that we are borrowing is too small which is why I had earlier said that we need to borrow more.