The proposed budget for 2025, set at a hefty N47.9 trillion, faces skepticism from economic stakeholders who fear that the optimistic projections may not materialize. Central to the proposed budget is an exchange rate assumption that pegs the naira at N1,400 to the dollar, alongside a crude oil benchmark of $75 per barrel. These assumptions come on the heels of Donald Trump’s recent election to the U.S. presidency, in light of which analysts like Lukman Otunuga from FTXM express concern that Trump’s policies to boost domestic oil production will likely lead to a drop in global oil prices and a strengthening of the dollar. This potential scenario could pose significant economic challenges for Nigeria, a nation heavily reliant on oil revenues.
Market analysts warn that Trump’s presidency might usher in inflationary pressures in the U.S. as a result of increased growth stemming from growth-focused policies. If the U.S. Federal Reserve opts to maintain elevated interest rates in response, it could ultimately weaken oil prices globally, which would be detrimental to oil-dependent economies like Nigeria’s. The combination of a declining global oil price and an appreciating dollar would exacerbate the current economic difficulties faced by Nigeria, which is already struggling with fiscal imbalances amid reduced oil production levels. According to data, Nigeria’s average oil production has dwindled in recent years, contributing to broader economic instability.
On the domestic front, Nigeria’s Minister of Budget and Economic Planning, Atiku Bagudu, outlined the government’s expectations for oil production targets and GDP growth in the proposed budget. The production target of 2.06 million barrels per day contrasts sharply with the declining averages of 1.52 million barrels per day as of September 2024. Notably, this downward trend in oil production—falling from 1.83 million barrels per day in 2020 to projected levels in subsequent years—highlights mounting challenges. Despite these hurdles, Bagudu maintains that the fiscal goals of the budget are conservative, suggesting confidence that actual performance will exceed the forecasts laid out.
The growing fiscal deficit, along with ongoing debt sustainability issues, has become a major concern among experts and stakeholders. Investment banker Tajudeen Olayinka pointedly remarks on the debt service-to-revenue ratio, which is dangerously high and indicative of unsustainable borrowing practices. Interest rates remain steep, complicating the already challenging economic landscape while impacting the supply chain. He does suggest, however, that with strategic deployment, borrowed funds could yield positive results over the long haul, emphasizing the importance of effective project targeting and management as essential for reversing current economic trends.
The Lagos Chamber of Commerce and Industry, represented by Director-General Chinyere Almona, has publicly criticized the N1,400 foreign exchange rate estimate, deeming it unrealistic in the current economic climate fraught with high inflation and currency fluctuations. Fellow economist Marcel Okeke echoes this sentiment, observing that Nigeria is taking on more debt than it can bear sustainably, which calls into question the prioritization of specific infrastructure projects and the timeframe for completion. By questioning the rationale behind selected projects, Okeke emphasizes the need for targeted and efficient decision-making when it comes to public spending.
Okeke, also a sustainability expert, warns against the dangers of unbridled borrowing, arguing that Nigeria risks digging itself into a deeper financial hole without a clear plan for repayment. As the naira continues to weaken, he notes the spiraling costs associated with servicing existing debt loads, further exacerbating fiscal difficulties. With current trends pointing toward continued depreciation of the naira, the challenge of managing national debt becomes increasingly complex, leading to a troubling scenario for Nigeria’s fiscal health in the foreseeable future. The convergence of these factors casts doubt on the proposed budget and highlights the significant obstacles that lie ahead for Nigeria’s economic recovery and growth.
