Quick Summary:
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Nigeria’s fiscal deficit is projected to rise to 4.7% of GDP in 2025, due to lower oil prices and increasing expenditures.
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2024 saw a deficit drop to 4.1%, thanks to stronger revenue collection and fiscal reforms.
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Oil revenue shortfalls and optimistic budget assumptions have widened the fiscal gap.
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IMF recommends cutting non-essential spending, fast-tracking tax reforms, and fully realizing fuel subsidy savings to maintain stability.
Nigeria’s fiscal deficit could widen to 4.7% of Gross Domestic Product (GDP) in 2025, according to the latest report from the International Monetary Fund (IMF). This projection highlights persistent fiscal challenges despite ongoing government reforms aimed at restoring economic stability.
Key Drivers: Falling Oil Revenues and Rising Expenditures
The expected increase in the fiscal deficit is primarily due to declining oil revenues and growing government expenditure. The IMF notes that this trend could threaten Nigeria’s fiscal sustainability if left unaddressed.
“In the baseline, staff projects a consolidated fiscal deficit of 4.7 percent of GDP in 2025. This is higher than the budget, owing to lower oil prices and production, and already reflects lower-than-budgeted capital expenditure,” the report stated.
Slight Improvement in 2024 Deficit
In 2024, Nigeria recorded a fiscal deficit of 4.1% of GDP, a reduction from 4.8% in 2023. The improvement was largely driven by stronger revenue collection, aided by exchange rate depreciation, inflation, and administrative efforts.
“The consolidated government deficit measured from below the line improved to 4.1 percent of GDP, from 4.8 percent of GDP in 2023,” the IMF stated.
Budget Assumptions vs. Reality
The IMF notes that the 2025 budget was based on optimistic assumptions about oil revenues. However, global oil price volatility and lower production levels have widened the fiscal gap. While Nigeria has made progress in boosting non-oil revenues through tax reforms, the underperformance of the oil sector continues to pose significant risks.
As capital spending increases, the government’s ability to meet its budgetary targets has weakened, raising concerns over the country’s fiscal capacity.
Revenue Mobilization Crucial for Stability
To address the widening fiscal gap, the IMF recommends a neutral fiscal stance in 2025. This would involve reducing non-essential spending while maintaining focus on growth-enhancing investments.
Fuel subsidy savings—projected to contribute up to 2% of GDP in 2025—could play a major role in offsetting fiscal pressures, but only if fully realized.
Tax Reforms as a Long-Term Solution
The IMF urges the Nigerian government to strengthen domestic revenue mobilization, especially by accelerating ongoing tax reforms. Initiatives to modernize Value Added Tax (VAT) and Company Income Tax (CIT) systems are expected to expand the tax base and improve compliance.
While these reforms offer long-term benefits, the IMF stresses that immediate steps are needed to control recurrent expenditures and rationalize capital projects to maintain fiscal discipline.
Policy Flexibility Needed to Navigate Uncertainty
Given the unpredictability of global economic conditions, the IMF calls for a flexible and responsive fiscal policy framework. Priorities should include:
- Fully realizing fuel subsidy savings
- Fast-tracking tax reform implementation
- Funding critical infrastructure without undermining fiscal stability
These actions, the IMF concludes, are essential to strengthening Nigeria’s economic resilience in 2025 and beyond.