The Nigerian federal government’s fiscal deficit increased from N3.88 trillion to N4.53 trillion in the second quarter of 2024.
This is in line with data from the Central Bank of Nigeria’s second-quarter 2024 economic report, which Nairametrics was able to view.
To put it simply, a fiscal deficit occurs when a government’s expenditures exceed its income from taxes and other sources. It indicates that the government is spending more than it is earning.
The government frequently borrows funds to close this imbalance, which may result in a rise in the national debt.
The study claims that although the deficit climbed significantly, the federal government’s income remittances only slightly increased to N2.3 trillion.Â
A significant reliance on deficit financing results from the fact that, despite a 57.66% increase over the first quarter, this amount still falls 52.49% short of the period’s goal.
Interest Rates Increase Public Spending
The report also points out that although the naira’s devaluation increased the government’s foreign exchange earnings, high-interest loan payments and other financial commitments were the main cause of the substantial increase in overall spending, which reached N6.83 trillion.
Recurrent expenses accounted for most of the spending, representing a 27.79% increase over the previous quarter.
According to the data, recurrent costs accounted for 89.7% of federal spending, but capital and transfer payments were only 3.66% and 6.37% of total spending, respectively.
Growing Worry Over Growing Deficit
Concerns over the government’s expanding deficit have grown, forcing the federal government to use loans to pay its debts and fulfill its commitments.
Fiscal risks are increased by this reliance, particularly in light of growing debt expenses.
Consistent quarterly income prediction failures suggest that the deficit may continue to grow, exacerbated by inflationary pressures and rising borrowing rates.
This pattern suggests that there is a continuous financial deficit in the government.
The federal government previously used the Central Bank’s Ways and Means facility to compensate for revenue deficits.
The Tinubu administration, however, declared that this practice would no longer be used to prevent past abuse and implement a more responsible budgetary approach.
What To Note
Members of the Monetary Policy Committee (MPC), last met in September by the Central Bank of Nigeria (CBN), voiced serious concerns about the growing budget deficit.
They emphasized the mounting strain this deficit places on the economy as a whole, particularly in light of Nigeria’s current economic situation, which is characterized by high inflation and difficulties with foreign exchange.
The members underlined the dangers of such a deficit and noted that a sustained fiscal imbalance might strain the nation’s resources and restrict the government’s capacity to make the kind of strategic economic investments required for long-term prosperity.
Nonetheless, by avoiding the Ways and Means facility, MPC members recognized the fiscal authorities’ resolve to refrain from employing monetary funding as a remedy.
This facility entails the central bank lending directly to the government and is usually used for emergency finance.
Nevertheless, this approach frequently raises the money supply, which may exacerbate inflationary pressures.
