In order to fund the planned rise in the minimum wage for workers, the federal government may need to create an additional budget. This is due to the possibility that the negotiated sum may exceed the amount allocated in the initial 2024 budget. This proposal was made by the International Monetary Fund in its most recent staff country report on Nigeria.
“According to the report, the authorities observed that the results of the ongoing wage structure negotiations might require a supplemental budget that goes beyond what they had budgeted for 2024.”
It further stated that in order to stop new borrowing from the central bank’s Ways and Means, the government may need to increase the limitations on both domestic and foreign borrowing.
Since the beginning of the year, the government and Organized Labor have been at odds over the new minimum wage, which is intended to mitigate the effects of the challenging economic climate. The cost of living has increased due to recent reforms in Nigeria, such as the elimination of fuel subsidies and the unification of the foreign currency market.
Although labor groups want the lowest-ranked workers to be paid N615,000 instead of N30,000, there are hints that the tripartite committee would suggest setting a new minimum salary of N70,000.
The foreign lender speculates that the N6.48tn allotted by the government for human expenditures in the 2024 budget may not be adequate. The IMF added that because of implicit subsidies, the nation’s budget deficit for 2024 is anticipated to be higher for fuel and electricity, alongside rising interest expenses on debt.
The Minister of Finance, Wale Edun, had stated the government planned to reduce the budget deficit from 6.1 per cent in the 2023 budget to 3.8 per cent in the current appropriation.
The report read in part, “Staff projects a higher fiscal deficit than anticipated in the 2024 budget, but broadly unchanged from 2023. The drivers are lower oil/gas revenue projections, reflecting IMF oil price forecasts but incorporating recent production gains; higher implicit fuel and electricity subsidies; continued suspension of excise measures included in the MTEF; and higher interest costs.
Staff factors in an under-execution of capital expenditure in line with past outcomes and estimates an FGN deficit of 4.5 per cent of GDP relative to the 2024 budget target of 3.4 per cent of GDP. For the consolidated government, this implies a projected deficit of 4.7 per cent of GDP in 2024—compared to 4.8 per cent of GDP in 2023 measured from the financing side—which is appropriate given the large social needs and factoring in a realistic pace of revenue mobilisation.
“Over the medium-term, staff projects consolidation in the non-oil primary deficit. With rising interest costs, government debt stabilises towards the end of the projection period.”
Meanwhile, the report also urged the government to consider meeting its financing needs from the market and external borrowing.
It said, “Based on staff’s projections, the authorities must raise the domestic and external borrowing ceilings to prevent renewed recourse to CBN financing. With higher interest rates, banks and nonbanks should have sufficient appetite—as indicated by market sources—conditional on careful management of system liquidity, including a likely reduction in the currently high cash reserve requirement.
“Staff projects that the government’s 2024 net financing needs can be met from the market and external borrowing. Domestic market financing needs to increase by 1.5 per cent of GDP over 2023. In addition, the government wants to retire outstanding ways and means borrowing from the CBN of 2.5 per cent of GDP through the issuance of further domestic securities.
It added, “While staff agrees that ways and means financing should be brought to zero by end-2024 in line with the law, the authorities may need to consider other options to avoid crowding out private sector credit, including drawing down the government’s deposits at the CBN built up in 2023 or a second securitisation operation to tackle this legacy problem.
“While external financing is costlier than when Nigeria last accessed Eurobond markets, staff supports an opportunistic issuance, also given upcoming maturities in 2025. A Eurobond issuance and some official financing are factored into staff’s projections as an integral part of the 2024 financing mix.”
