President Bola Tinubu’s proposed 9.77 per cent increase in the 2025 budget from N49.7 trillion to N54.2 trillion is a double-edged sword. While a bigger budget may be necessary to address urgent national needs, it carries the troubling potential to worsen inflation if not managed with precision and restraint.
On February 4, the President wrote the parliament, urging it to increase the 2025 budget to N54.2 trillion. This is a significant expansionary fiscal policy. It must be implemented diligently to achieve the primary goal of stimulating the economy.
Indeed, budgets suffer from low performance in Nigeria. The size of the immediate past budgets keeps increasing without a corresponding record of performance. In all this, budget deficits are huge.
Therefore, the Tinubu administration must ensure that this expanded budget does not become an unchecked spending spree that fuels inflation and economic instability.
Instead, the government must strictly tie additional revenues to targeted, high-impact projects and curb all non-essential expenditures.
By its naira size, this is the highest federal budget in history. For comparison, the federal budget was N13.59 trillion in 2021, N17.12 trillion in 2022, N21.8 trillion in 2023, and N27.5 trillion in 2024. This was Tinubu’s first full-year budget after succeeding Muhammadu Buhari as president in mid-2023.
The proposed funding sources for the increase viz: the Federal Inland Revenue Service (N1.4 trillion); the Nigeria Customs Service (N1.2 trillion), and other government-owned agencies (N1.8 trillion) suggests that the expansionary policy is not reliant on printing new money. This is merely positive.
However, a more prudent approach would have been to apply the funds to narrow the N13.8 trillion deficit in the initial 2025 budget instead of being treated as a windfall since the budget assumptions concerning the naira exchange rate, oil production, and crude prices are not cast in stone.
Nigeria has no real power over oil prices. The prices fluctuate and are dependent on several factors. Nigeria needs to make up ground in oil production as a new report estimated the cost of production of a barrel of oil at $40. This is higher than the cost in other oil producing countries.
Under Buhari – and now Tinubu – Nigeria has been struggling to change its budget cycle from January to December without success. This makes the parliament extend the implementation of budgets to the next year. Budget overlaps muddle up implementation. In December, the NASS extended the lifespan of the 2024 budget to June 30, 2025. Early budget presentation and swift implementation can reduce this anomaly.
Nigeria is already grappling with high inflation. It surged to a 28-year high of 34.6 per cent as of November and has eroded the purchasing power of millions.
Increasing government spending without strict control will inject more money into the economy, further driving up prices. This makes nonsense of the Central Bank of Nigeria’s efforts to rein in inflation through monetary policies, including punishing interest rate hikes.
At its November meeting, the monetary authorities raised the benchmark rate by 25 basis points to 27.50 per cent from 27.25 per cent in September.
In contrast, the South African Reserve Bank cut its benchmark interest rate by 25 basis points to 7.5 per cent in January. That was the third consecutive reduction since SARB began easing policy in September.
In December, the National Bank of Morocco (Bank al-Maghrib) slashed its benchmark interest rate by 25 basis points to 2.50 per cent.
In the United States, the borrowing benchmark is currently in a target range of 4.25-4.5 per cent, the highest since 2007. The Bank of England reduced its base rate to 4.5 per cent from 4.75 per cent on February 6. The interest rate in Canada, Germany, Australia, and France is in single digits. Japan just hiked its interest rate to 0.5 per cent from 0.25 per cent.
Two members of the CBN’s Monetary Policy Committee, Murtala Sagagi and Phillip Ikeazor, in personal statements released after the MPC’s 298th meeting, posited that the inability to control fiscal expenditures continues to weaken the transmission of monetary policy measures, making inflation and exchange rate stability difficult to achieve.
The money supply rose 51 per cent year on year to N108.96 trillion as of November 2024 due to the government’s borrowing spree. Tinubu has borrowed N46.8 trillion as of June 2024 ballooning the national debt to N138 trillion compared with N87.3 trillion when he assumed office in May 2023.
Since the Senate is likely to approve the adjustments, the Tinubu administration must avoid the temptation of using the extra revenue to fund non-essential or poorly executed projects.
Every additional naira must be tied to specific, well-defined infrastructure projects and social programmes that directly benefit Nigerians.
Critical sectors such as energy, transportation, healthcare, and education should take precedence over vague administrative expenditures and unnecessary government perks.
It is a bit comforting that the government has detailed how the extra revenue will be spent.
Tinubu says solid minerals will get N1 trillion; Bank of Agriculture recapitalisation, N1.5 trillion; Bank of Industry recapitalisation, N500 billion; critical infrastructure, N1.5 trillion; military barracks accommodation, N250 billion; and military aviation, N120 billion. This should be more than rhetoric.
In addition, irrigation development gets N380 billion; transportation infrastructure: N700 billion; and border communities’ infrastructure: N50 billion.
However, transparency is crucial. It is easy to put down proposals to get budgetary approvals. Successive Nigerian governments are notorious for mismanagement and misapplication of funds, so it is difficult to take this commitment at face value.
The government should clearly outline where every additional budgetary allocation is going and ensure strict oversight to prevent leakages and corruption.
The extra N4.8 trillion can generate long-term economic growth rather than short-term inflationary pressures if channelled properly into productive sectors.
This development highlights issues with Nigeria’s government, which remains bloated with unnecessary expenditures, including fleets of SUVs, bogus overheads, training expenditures, and needless travel.
The Ministries, Departments, and Agencies must undergo spending reviews to eliminate redundant costs and focus only on essential services.
A larger budget should not present an opportunity for reckless government spending.
Instead, it must be an opportunity to redirect funds to sectors that will reduce the economic burden on Nigerians.
This includes improving power supply to lower business costs, expanding transport infrastructure to reduce logistics expenses, and enhancing food security through agricultural investments.
The government set an ambitious inflation target of 15 per cent for 2025, which the CBN is working to achieve with interest rate adjustments and monetary tightening.
However, if government spending continues to be reckless, these efforts will be undermined. There must be greater synergy between fiscal and monetary policies to stabilise the economy.
The Ministry of Finance and the CBN must work together to ensure that budgetary decisions complement monetary strategies.
The government must avoid excessive borrowing, which worsens inflation and places a long-term debt burden on future generations.
