Navigating Nigeria’s Fiscal Future: Strategic Imperatives to Tackle 2024 Budget Deficit

Nigeria stands at a fiscal crossroads in 2024. The confluence of volatile global oil markets, underperforming production volumes, and the increasing burden of debt servicing has placed significant pressure on the government’s ability to finance its ambitious budget. With a projected deficit of N9.1 trillion, the Nigerian government must confront these challenges head-on to safeguard the nation’s economic stability and future growth.

However, this moment presents not only challenges but also opportunities to implement critical reforms that could put the country on a sustainable fiscal path. Below, I outline strategic imperatives to mitigate the risk of breaching the 2024 budget deficit and ensure long-term resilience.

The Challenge: Declining Oil Revenues and Unsustainable Borrowing

The 2024 budget was built on assumptions of a $77.96 per barrel crude oil benchmark and an oil production target of 1.78 million barrels per day. Yet, for most of the year, production has fallen short of targets due to underinvestment and structural issues in the oil sector. The global oil market, marked by price fluctuations and a gradual shift toward renewable energy, has further compounded the problem. According to recent data, Bonny Light crude has averaged below $75 per barrel, well below the government’s target.

While the Nigerian government has projected N19.6 trillion in revenue for 2024, with 46.9% expected from oil-related sources, this forecast is overly optimistic given current market conditions. Moreover, the naira's devaluation, though initially boosting federal allocations, has significantly increased debt-servicing costs, placing additional pressure on already strained public finances.

Without decisive action, Nigeria risks widening its fiscal deficit and exacerbating its debt burden.

Strategic Imperatives: Building Fiscal Resilience and Reducing Dependence on Hydrocarbon Revenues

1. Diversify Revenue Sources Beyond Oil

Nigeria’s over-reliance on oil revenue has left the economy vulnerable to external shocks. In line with recommendations from the World Bank and IMF, the government must urgently accelerate efforts to diversify revenue streams. Expanding non-oil tax collection, improving compliance, and investing in industries such as agriculture, technology, and manufacturing can provide a more stable revenue base.

Actionable Strategy:

• Tax reform and broadening the tax base: Enhancing the collection of non-oil taxes is essential. Nigeria must focus on closing the tax gap by implementing stricter compliance measures and digital tax systems. This can be supported by improved enforcement of VAT and corporate tax collection across sectors.
• Incentivize private sector investment: Offering tax incentives, streamlined regulations, and infrastructure support can drive growth in sectors like fintech, agro-processing, and renewable energy, helping reduce the reliance on oil-related revenues.

2. Strengthen Oil Production Capacity and Efficiency

While long-term diversification is necessary, Nigeria cannot afford to ignore the oil sector’s immediate contributions to revenue. Maximizing oil production to meet or exceed the 1.78 mbpd target should remain a top priority. This can be achieved through targeted reforms aimed at improving the operational efficiency of state-owned oil assets and attracting foreign direct investment (FDI) into the energy sector.

Actionable Strategy:

• Revitalize the upstream oil sector: The Nigerian National Petroleum Corporation (NNPC) and other key stakeholders must prioritize increasing production by addressing pipeline sabotage, theft, and operational inefficiencies. Collaborating with international oil companies (IOCs) can accelerate production growth.
• Leverage private-public partnerships (PPPs): Involve private capital to upgrade critical infrastructure, ensuring that production and export operations are streamlined. These partnerships can unlock much-needed investment in energy infrastructure.
• Increased Security: The Military must increase security and actionable intelligence to mitigate oil theft, damage to oil pipelines and infrastructure. Not just destroy illegal oil refineries, but arrest and prosecute criminals behind them and also those engaging in widespread crude oil theft and vandalization.

3. Prudent Debt Management and Borrowing Strategy

Debt servicing remains a major challenge, exacerbated by the weakening naira. The Nigerian government must adopt a more sustainable borrowing strategy that balances domestic and international financing, prioritizing concessional loans and grants over costly commercial borrowing.

Actionable Strategy:

• Optimize debt composition: Focus on concessional financing from multilateral institutions, such as the World Bank and IMF, to lower interest payments. Strengthening ties with bilateral partners for favorable loan terms can also reduce fiscal pressure.
• Improve debt transparency and accountability: Ensure that borrowed funds are efficiently utilized for productive projects that generate economic returns. This requires tighter monitoring of capital projects to avoid underperformance, as seen with the unexecuted capital expenditure portion of the 2023 budget.

4. Invest in Human Capital and Infrastructure

To achieve sustainable economic growth, Nigeria must focus on long-term investments in human capital and critical infrastructure. The government’s commitment to allocating N9.9 trillion for capital expenditure in 2024 is commendable but must be carefully implemented to maximize its impact.

Actionable Strategy:

• Prioritize high-impact projects: Focus on infrastructure projects that drive growth, such as energy, transportation, and technology. Prioritizing investments that create jobs and improve productivity will strengthen the economy’s resilience.
• Expand education, agriculture and health spending: Investing in education, agriculture and healthcare can drive long-term economic growth by improving workforce quality and reducing poverty. This aligns with the government’s broader goal of reducing the infrastructure deficit.

5. Strengthen Policy Coordination and Execution

Effective governance is critical to ensuring that fiscal policies deliver the intended outcomes. The Tinubu administration must prioritize stronger coordination between fiscal and monetary policies, aligning efforts across ministries to create a cohesive economic strategy.

Actionable Strategy:

• Enhance inter-ministerial collaboration: Establish cross-functional task forces to ensure alignment between the Ministry of Finance, the Central Bank of Nigeria (CBN), and other key economic institutions. This will facilitate effective policy implementation and monitoring.
• Leverage data for policy decisions: Utilize real-time economic data and analytics to make informed policy decisions. Transparency in fiscal operations can build trust with both domestic and international stakeholders, ensuring continued investment and support.

A Path Forward

The Nigerian government is faced with a significant challenge: how to balance ambitious fiscal goals with the realities of global oil market volatility and rising debt obligations. However, this also presents a pivotal opportunity to implement strategic reforms that can secure Nigeria’s economic future.

By diversifying revenue streams, improving oil production efficiency, adopting a prudent debt strategy, and prioritizing infrastructure and human capital development, Nigeria can navigate its way through the fiscal challenges of 2024 and beyond. These actions, if executed effectively, will not only mitigate the risk of breaching the budget deficit but will also lay the foundation for long-term economic stability.

The global landscape is shifting, and Nigeria must adapt quickly. Bold, coordinated action today will determine whether the country emerges stronger and more resilient in the years to come. The time for decisive leadership is now.