The World Bank has expressed doubts about Nigeria’s N54.99 trillion federal budget for 2025, calling it highly ambitious and warning of potential funding shortfalls that may push the government toward borrowing from the Central Bank of Nigeria.
During the launch of its latest Nigeria Development Update (NDU) in Abuja, titled “Building Momentum for Inclusive Growth,” the World Bank emphasized the risk of the government relying on the Central Bank’s Ways and Means facility, a practice discouraged due to its impact on macroeconomic stability.
President Bola Tinubu signed the record-breaking budget into law in December 2024. The financial plan allocates N13.64 trillion to recurrent expenditure, N23.96 trillion to capital spending, N14.32 trillion for debt servicing, and N3.65 trillion for statutory transfers, projecting a fiscal deficit of N13.08 trillion to be covered by domestic and foreign borrowing.
Overly Optimistic Assumptions
World Bank Lead Economist for Nigeria, Alex Sienaert, cautioned that the budget’s underlying projections—particularly crude oil production of 2.06 million barrels per day and a price benchmark of $75 per barrel—may not be achievable. Current production hovers around 1.6 million barrels per day, he noted.
Sienaert also pointed to uncertainties around expected revenues from the removal of the petrol subsidy and a planned windfall tax on foreign exchange gains. These variables, he said, could result in a funding gap that exceeds current projections.
“If revenue targets fall short, Nigeria could face pressure to accumulate payment arrears or revert to deficit financing via Central Bank overdrafts,” he warned.
Although authorities have publicly committed to avoiding the controversial Ways and Means facility, the World Bank emphasized that any return to it would risk reversing recent gains in fiscal credibility and currency stabilization.
Call for Further Reforms
While acknowledging progress made through subsidy removal and a more flexible exchange rate, the World Bank called for additional reforms to secure long-term fiscal health. These include eliminating electricity subsidies, which the institution labeled “wasteful and regressive,” enhancing oil revenue transparency, and cutting the cost of governance.
Sienaert noted that although the Nigerian National Petroleum Company Limited began using official exchange rates in late 2023, only a fraction of the expected subsidy removal revenue had reached the Federation Account by early 2025.
He stressed the importance of ensuring that the full fiscal benefits from subsidy reforms are realized and allocated toward developmental priorities.
Inflation Pressures Persist
On inflation, the Bank acknowledged that monetary tightening by Nigerian authorities had begun to stabilize prices, but warned that inflationary pressures remain elevated. “The fight against inflation is ongoing,” Sienaert said, describing the situation as a “dense fog of war.”
The World Bank’s cautious stance underscores the fragile nature of Nigeria’s economic recovery and the importance of prudent fiscal management in achieving the ambitious goals set forth in the 2025 budget.
