The Federal Government may find itself in need of a supplementary budget to accommodate the proposed increase in the minimum wage for workers, according to recommendations from the International Monetary Fund (IMF) in its latest staff country report for Nigeria.
The report highlights concerns that the negotiated minimum wage may surpass the budgeted amount in the original 2024 budget, necessitating additional funding. It suggests that the government might need to consider raising both domestic and external borrowing ceilings to avoid relying on fresh borrowings from the apex bank’s Ways and Means.
Negotiations over the new minimum wage have been ongoing between Organised Labour and the government since the beginning of the year, aiming to alleviate the impacts of the challenging economic conditions. With recent reforms such as the removal of fuel subsidy and the unification of the foreign exchange market driving up the cost of living, there’s increasing pressure to address wage disparities.
While labour leaders advocate for a significant increase from the current N30,000 to N615,000 for the lowest-ranked workers, indications suggest the tripartite committee may recommend N70,000 as the new minimum wage.
However, concerns persist regarding the adequacy of the budget allocation for personnel costs, which stands at N6.48 trillion in the 2024 budget. The IMF suggests this amount may fall short, particularly considering implicit subsidies for fuel and electricity, alongside rising interest expenses on debt.
The report also notes that the country’s budget deficit for 2024 is anticipated to exceed projections due to various factors, including lower oil and gas revenue, higher subsidies, and increased interest costs. While the Minister of Finance, Wale Edun, aims to reduce the budget deficit from 6.1 per cent in 2023 to 3.8 per cent in the current appropriation, achieving this target may prove challenging.
In light of these challenges, the IMF advises the government to explore alternative financing options, emphasizing the importance of meeting financing needs from the market and external borrowing. It suggests careful management of liquidity to prevent crowding out private sector credit and advocates for measures to address legacy issues such as ways and means financing.
While acknowledging the higher costs associated with external financing, the IMF supports opportunistic issuance, considering upcoming maturities in 2025. It recommends a balanced approach to financing, incorporating both Eurobond issuance and official financing to meet Nigeria’s funding requirements for 2024.
