Budget deficit-to-GDP hits 7.5%

The Federal Government’s budget deficit has reportedly risen to 7.5 per cent of the country’s Gross Domestic Product, GDP as of August 2024, reflecting a significant widening of the gap between government revenue and expenditure.

PUNCH reports that a member of the Central Bank of Nigeria Monetary Policy Committee, Muhammad Abdullahi, disclosed this in his statement at the 297th MPC meeting.

The CBN economic report had earlier revealed that Nigeria’s fiscal deficit surged to N4.53tn in the second quarter of 2024, up from N3.88tn in the previous quarter.

A fiscal deficit happens when a government’s spending exceeds its revenue from taxes and other sources. It means the government is spending more money than it’s bringing in.

To cover this gap, the government often borrows money, which can lead to an increase in public debt.

Abdullahi said this development underscores the ongoing challenges the government faces in enhancing its revenue generation efforts.

It also signals a greater reliance on borrowing to finance the growing expenditure, raising concerns about the long-term fiscal sustainability and potential impacts on national debt levels.

Highlighting the challenges posed by the situation, the MPC member stated that the committee must remain proactive in dampening the likely consequences of the deficit, especially with the commencement of the new minimum wage payment.

He said the Federal Government’s fiscal operations resulted in a budget deficit of 7.6 per cent of GDP as of August 2024, adding that “Monetary policy must thus remain proactive in dampening the likely consequences of the deficit especially when the implementation of the new minimum wage gains traction.”

According to him, “The deficit could, however, narrow as ongoing efforts to enhance revenue generation and reduce government expenditure are expected to improve the fiscal outlook.

“The narrowing of the fiscal deficit will have positive implications for overall macroeconomic stability.”

Similarly, Senior Fellow and Director of the Africa Growth Initiative at the Brookings Institution and member of the Central Bank of Nigeria Monetary Policy Committee, Aloysius Ordu, while expressing his views on fiscal policy, stated that challenges abound that are at odds with the CBN’s firm anti-inflationary stance.

“A review of the fiscal indicators for the first half of 2024 showed that FGN revenues under-performed, achieving only 37.9 per cent of the target, due largely to the deficit in FAAC receipts.

“Recurrent spending exceeded targets, largely due to debt service payments, while spending on the capital account continued to underperform. As of mid-2024, the overall fiscal deficit exceeded budget projections by over 85 per cent, emphasizing the need to re-prioritize spending in favour of much-needed capital projects. It also emphasizes the need for the CBN to avoid monetizing the deficit,” Ordu is quoted.

Deputy Governor for Operations at the Central Bank of Nigeria, and member of the Central Bank of Nigeria Monetary Policy Committee, Emem Usoro, reportedly emphasised that other pressure points 20 for price stability include, the widening fiscal deficit occasioned by fiscal stress from the revenue side, exchange rate fluctuations emanating from seasonal effects and supply constraints, and climatic factors which have exacerbated supply chain disruptions.