Revenue and expenditure provisions of budgets are crafted against the background of projections of underlying assumptions, which ideally should be founded on empirical evidence. These projections are made following a review of the national, regional, and international economic and political environment, the performance of previous forecasts and factors which may shape economic performance in the coming year. Indeed, the Fiscal Responsibility Act requires an evaluation and analysis of the performance of the macroeconomic projections for the preceding three financial years and the projections to be based on reliable and consistent certified data. This discourse reviews the macroeconomic assumptions underlying the 2024 federal budget, the extant performance, and the credibility challenges. It proffers suggestions on the consequences of the dissonance between projections and economic reality.

It is imperative at the outset to understand that macroeconomic projections and projections of revenue and expenditure in the 20204 federal budget could have been made based on certain further assumptions on the performance of other economic, social, administrative and political variables. These would in the Nigerian context include reduced insecurity to boost agriculture and other productivity, increased oil production and exports through reduction of industrial scale oil theft, domestic refining of petroleum from public and private owned refineries, full withdrawal of petroleum subsidy, reduction of the cost of governance through reform initiatives, blocking the leaking pipes of corruption, etc.

The inflation rate was projected at 21.40%. However, inflation was far higher than 21.4% at 28.20% in November 2023, being the time the budget estimates were prepared. Today, headline inflation stands at 33.69% with food inflation at 40.53%. Food and non-alcoholic beverages at the divisional level contributed 17.45% of the headline inflation index. Apparently, the projection was built on hope without a foundation. The implication of inflation missing its target by this wide margin include the fact that sums appropriated for projects will no longer be sufficient to implement them, lower purchasing power, higher interest rates, slower economic growth, etc. Higher intertest rates, as exemplified by the tightening stance of the Central Bank of Nigeria’s Monetary Policy Committee, mean that sums appropriated for capital expenditure through public procurement will need to be increased. It also implies that public debt instruments attract higher yields, leading to increased debt service sums than projected at the beginning of the year.

Allied to the inflation rate is the exchange rate of N800 to United States Dollar. The average exchange rate between January and May 2023 is in the neighbourhood of N1,300 to 1USD; imports have become more expensive and the living standard has fallen, weakening economic growth potentials and fueling inflation. In an import dependent economy like Nigeria, this will greatly distort budget execution. Although there is what is referred to as the “exchange rate gain” shared at the Federation Accounts allocation, it does not fully compensate for the losses and instability occasioned by missing the budget’s target. The fluctuating exchange rate has also impacted the private sector which can no longer plan their production and service delivery activities due to macroeconomic instability. This is most clearly reflected in imports of goods where the duties are benchmarked on the exchange rate which has been changing sometimes on a daily and weekly basis.

The next is the projection for crude oil production at 1.78million barrels per day. According to data from the Nigerian Upstream Petroleum Regulatory Commission, Nigeria produced 159,158,191 barrels of crude oil in the first four months of 2024 averaging 1.31mbpd. This leaves a shortfall of 470,000 barrels per day. At $80 per barrel, this is a shortfall of $13.724billion in a year and this translates to N17.841trillion at 1USD to N1,300. Although not all the whole of this sum would have accrued to the Federation Account considering the take of oil companies and production costs, a sizeable portion of this would have been available to the federal government and the states. The oil price benchmark in support of the revenue profile seems to be performing creditably well. However, it has been reported that FIRS fell short of oil tax revenue target by N1.69 trillion in first four months of 2024. The projection is that FIRS should have collected N3.32 trillion in oil taxes between January and April. The actual collection represents 49% of the approved target implying another revenue shortfall.

Essentially, critical and major components of federal government’s projected revenue are missing the target. The import of this development is that the revenue projections are dead on arrival and cannot meet the expenditure profile. Furthermore, it implies a bigger deficit will be incurred than projected if the government insists on spending the full appropriated sum. This further implies increased borrowing leading to increasing outlays for debt service in subsequent years. The GDP growth rate was projected at 3.88% but the first quarter report from the National Bureau of Statistics is indicating a 2.98% year on year growth. The first quarter growth figure may not be the full year picture but when other macroeconomic fundamentals are headed south, it may be very difficult to meet the projected GDP growth rate.

From emerging information, the federal government is still paying fuel subsidy which is projected to hit N5.4trillion by year end, a fact not considered in any of the macroeconomic and expenditure projections for the year. The public refineries have not been fixed despite three years of promises, the last indicating it would come on stream in December 2023. Insecurity is still rampaging the land, especially preventing farmers from tilling and harvesting. The expectation that oil theft will become history has not materialized.

All the foregoing point to budget credibility challenges where government cannot be held to account to fulfil the commitments made in the budget. It should be recalled that the budget and its accompanying frameworks and assumptions are enacted as law. Fiscal responsibility requires that appropriations are spent in accordance with the tenor of the legislative mandate and deviations should be approved by legislative action. Fit and good practices do not support such large-scale deviations from projections as the 2024 budget has experienced in five months. A 5% deviation may be reasonable considering that humans do not operate in the realm of gods. But a deviation in excess of 40% is simply a fiscal disaster and needs to be rectified.

In the circumstances, the foundations for the 2024 federal budget have become very weak and the entire structure may sooner than later collapse. It is therefore imperative to re-engineer the federal budget through a comprehensive mid-year review, which takes account of the prevailing macroeconomic and revenue circumstances and deploys them to plan expenditure for the remaining part of the year. A revision of the macroeconomic projections is overdue. A re-ordering of priorities based on available resources and stock taking on the reasons that led to this situation is due, and the mid-year review offers a good opportunity to do this.