The Nigerian government faces a challenging fiscal year in 2025, as the steep depreciation of the Naira threatens the viability of its proposed ₦49.7 trillion budget. Experts warn that the currency’s free fall could significantly limit the Federal Government’s ability to deliver on its fiscal objectives.
Over the past year, the Naira has experienced a dramatic decline, devaluing from approximately ₦853 to ₦1,536 per dollar by December 2023, and at one point hitting an alarming low of ₦1,800. Despite efforts by the Central Bank of Nigeria (CBN) to stabilize the currency through its new foreign exchange policy, the Naira’s value continues to fluctuate, raising concerns about the fiscal and economic outlook for 2025.
Shrinking Real Value of the Budget
Although the 2025 budget has seen a 74% nominal increase from the 2024 figure of ₦28.8 trillion, its real value has contracted by 23% due to inflation and exchange rate pressures. President Bola Tinubu’s administration has proposed a bold fiscal plan, projecting revenue of ₦34.82 trillion and a deficit of ₦13.08 trillion. However, experts believe that the current exchange rate challenges will make it difficult for the government to achieve the same purchasing power as previous budgets.
2025 Budget Assumptions
Key projections in the 2025 budget include:
- Oil price benchmark: $75 per barrel
- Daily oil production: 2.06 million barrels
- Exchange rate: ₦1,500 per dollar
- Inflation target: 15%
Despite these optimistic assumptions, the current inflation rate stands at 34.6%, and the exchange rate remains volatile, casting doubt on whether these targets can be met.
Spending Priorities
The proposed ₦49.7 trillion budget includes significant allocations to critical sectors:
- Defense and security: ₦4.91 trillion
- Infrastructure: ₦4.06 trillion
- Health: ₦2.48 trillion
- Education: ₦3.52 trillion
- Debt servicing: ₦15.81 trillion
The budget aims to rebuild the country while addressing its pressing developmental challenges.
Inflation and Exchange Rate Woes
Inflation has continued its upward trajectory, driven by rising costs of goods and services. The CBN’s monetary policy adjustments, including hikes in the Monetary Policy Rate (MPR), have struggled to tame the inflationary pressures. The Federal Government initially targeted an inflation rate of 21% in 2024 but fell short as it soared to 34.6%. The 2025 target to reduce inflation to 15% is ambitious and may hinge on stabilizing the exchange rate.
Economic Performance and Outlook
Despite the economic hurdles, President Tinubu highlighted some achievements during the 2024 budget presentation. The economy grew by 3.46% in the third quarter of 2024, up from 2.54% during the same period in 2023. Additionally, foreign reserves have reached nearly $42 billion, providing a buffer against external shocks. The nation also recorded a trade surplus of ₦5.8 trillion, reflecting increased exports.
However, experts caution that these gains could be overshadowed by the persistent devaluation of the Naira and high inflation, which erode the purchasing power of both households and the government.
Bottom Line
The Federal Government’s 2025 fiscal plan hinges on its ability to stabilize the Naira and control inflation. While the proposed budget demonstrates a commitment to economic recovery and development, achieving these goals will require decisive actions to address the underlying challenges of currency devaluation and inflationary pressures.
As Nigeria embarks on another fiscal year, all eyes will be on the government’s ability to implement policies that restore confidence in the economy and improve the standard of living for its citizens.
