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Another increase in budgetary expenditure

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The Federal Executive Council (FEC) has proposed a budget expenditure of over N26.01tn for the 2024 fiscal year from the total expenditure of N21.83tn for the 2023 fiscal year.

The budget, which is 19.15% higher than the 2023 budget, is expected to focus on infrastructure development, human capital investment, and economic diversification.

The breakdown of the proposed budget shows that the recurrent expenditure, capital expenditure and debt service may come in at N10.26tn, N7.97tn and N8.25tn from N8.33tn, N6.45tn and N6.31tn respectively in 2023.

The revenue estimate of the budget is based on the assumption that the price of crude oil will average US$73.96/bbl. (vs US$70/bbl. in the 2023 budget) while oil production will rise to 1.78mbpd (vs 1.69mbpd in the 2023 budget).

Meanwhile, an exchange rate of N700/US$ (vs N435.57/US$ in the 2023 budget) was assumed.

The exchange rate at the I&E window was N848.12/US$ as of 18 October 2023 which means the 2024 budget is expected to reverse the depreciation of the Naira.

Oil price and production assumptions appear feasible if more efforts are made to combat oil theft. According to the latest monthly report from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s average oil production hit a 20-month high in September reaching 1.57mbpd.

We may likely see an improvement in the country’s fiscal position. Given expected savings on subsidy, the impact of the currency devaluation on FX revenue and expectations of growth in tax revenue from new taxes introduced in the new Finance Act, the target budget deficit assumption may not be as high as expected and may not be exceeded as has been the pattern in recent years.

The country’s fiscal deficit has surpassed the target by an average of c.65% over the last 5 years due to ambitious revenue estimates amidst volatile crude oil prices.

As at 30 June 2023, the nation’s debt had risen to N87.38tn which brought the debt-service-to-revenue ratio to 73.5% in the period above the threshold of 50%.

The government will need to find ways to reduce its debt burden without compromising on essential services.

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