Nigeria’s federal budget deficit rises to N4.53 trillion in the second quarter of 2024, up from N3.88 trillion in the first quarter, according to the latest economic report from the Central Bank of Nigeria (CBN).
A fiscal deficit occurs when the government’s expenditures exceed its revenues from taxes and other sources. To bridge this gap, the government often resorts to borrowing, which increases public debt.
The report shows that government revenue increases slightly in Q2, but still falls significantly short of the target for the period, leading to a continued reliance on deficit financing.
Interest Payments Drive Rising Expenditures
Government expenditures increase to N6.83 trillion in Q2 2024, a 27.79% rise from the previous quarter. This growth is largely driven by higher interest payments on loans, with recurrent spending accounting for the majority of the expenditure. The report reveals that 89.7% of government spending is on recurrent costs, while only 3.66% is allocated for capital investments and 6.37% for transfers.
Concerns Over Sustained Fiscal Imbalance
The growing deficit raises concerns about the government’s increasing reliance on loans to meet obligations, which could strain national resources and heighten fiscal risks. Continuous shortfalls in revenue projections suggest the deficit may continue to widen in the near future, exacerbated by rising debt servicing costs and inflationary pressures.
The Tinubu administration has committed to ending the use of the Central Bank’s Ways and Means facility, which was previously used to cover revenue gaps, in favor of a more disciplined fiscal management approach. This shift aims to avoid the inflationary risks associated with direct borrowing from the central bank.
CBN’s Monetary Policy Committee Expresses Concern
At its September meeting, the Central Bank of Nigeria’s Monetary Policy Committee (MPC) expresses concerns about the expanding fiscal deficit and its impact on the overall economy, particularly amid high inflation and foreign exchange challenges. The committee highlights the potential for persistent fiscal imbalances to constrain the government’s ability to make critical economic investments and drive sustainable growth. However, the MPC acknowledges the government’s commitment to avoiding further use of the Ways and Means facility as a means of financing.
