LCCI STATEMENT ON 2025-2027 MEDIUM-TERM EXPENDITURE FRAMEWORK OF THE FEDERAL GOVERNMENT.
The approved 2025 – 2027 MTEF proposed that the federal government will spend N47.9 trillion to run the economy in 2025. This represents an increase of 36.64% in government expenditure compared to N35.06 trillion in 2024. In nominal terms, the budget is the highest in the history of the country in Naira denomination. The proposed 2025 budget aggregates are inherently sensitive to current macroeconomic conditions, as they directly impact revenue generation, expenditure, and overall fiscal performance.
A review of the key parameters and assumptions on which the 2025 budget is being proposed appears to be too optimistic in the face of current realities as recorded in the economic and social indicators. Particularly, the assumption of an exchange rate at N1,400 is too fragile to work with against the current average of above N1600 to a Dollar in both the official and parallel markets. Assuming an inflation rate at 15.8 percent does not reflect the unabating factors pushing up both the headline and food inflation. With inflation rising to 33.88 percent as of October 2024, it is unrealistic to assume a steep 51 percent crash within a year. Since the current challenging economic conditions are mostly fueled by the inflation rate and the exchange rate, we advise the government to reconsider the apparently over-ambitious assumptions for the 2025 federal budget.
Beyond the assumptions and projections, the creation of an enabling environment for the private sector to thrive, and the clarity of policy direction in the economy are critical to achieving the projected growth rate of our Gross Domestic Product (GDP) in 2025.
Further breakdown indicates that debt services are proposed to increase by 91.2% to N15.38 trillion, which is equivalent to 32.1% of the total budget. This appears to be unsustainable. The situation is further worsened with the projected deficit at N13.08 trillion and new borrowings of N9.22 trillion.
With federal government debt already at about N134 trillion as of June 2024, inflation reaching a new high of 33.88 percent as of October, and businesses burdened with a high Monetary Policy Rate at 27.25 percent, the Federal Government has a narrow bridge to navigate choices of policy options.
We urge the Central Bank of Nigeria to sustain its Ways and Means Advances to the Federal Government at a five percent limit for the fiscal years 2024-2025. The federal government should sustain fiscal discipline by complying with the Fiscal Responsibility Act in budget management and borrowing.
Non-oil revenues, such as taxes, customs duties, and surpluses from government agencies, are all subject to volatility in the economy. Current economic downturns, tense business environment, ongoing debates on tax policies, and shifts in consumer behavior can impact non-oil revenue performance.
In the face of current realities, we urge the government at all levels to be more proactive in respect of nature-induced casualties, climate change impacts, and damages caused by human activities. In recent months we have recorded massive destruction of lives and properties due to Climate-related factors. We therefore expect the legislative arms at all levels of government to appropriate more funds to tackle climate change adaptation and mitigation nationwide.
We need to focus on sectors that have shown resilience and relevance and are key drivers of current economic indicators like inflation, exchange rate, unemployment, and interest rates. We therefore recommend more investments in food production (crop, livestock, fisheries, and poultry), power supply, the fight against insecurity, and becoming more intentional about having a robust and stable policy and regulatory environment. Other very critical areas needing coordinated and harmonized monetary and fiscal policies are power supply, energy costs, supply chain disruptions due to insecurity, reducing youth unemployment through skills acquisition, and a concerted effort towards empowering Small and Medium Size Enterprises.
Dr. Chinyere Almona, FCA
Director-General
Lagos Chamber of Commerce & Industry
Friday 15th November 2024
