The Logic of Bogus Budget Forecasts
Postscript by Waziri Adio
A recent paper by the International Monetary Fund (IMF) confirms that the revenue and expenditure projections in Nigeria’s federal budgets have been consistently and wildly off-the-mark. This is a notorious fact which is obvious to anyone who has been paying some attention to our budgets. The unvarnished truth is that the budgeting process has been reduced to a hollow ritual, and the annual appropriation acts, even when they are duly passed laws, are largely treated as mere suggestions.
IMF rightly identified unrealistic forecasts as the reason for the material variations in our approved and the implemented budgets. But the organisation mischaracterises the consistently dodgy forecasts as errors. They are not errors. They are deliberate features of the design. There is a logic to them and they serve some purposes, the reason why they have been sustained over many administrations.
Titled “Fiscal Forecasting Errors in Nigeria,” the July 2025 Selected Issues Paper by IMF combed and compared Nigeria’s appropriation acts and budget implementation reports from 2011 to 2023. This analysis, IMF says, reveals “large forecasting errors …for a range of fiscal aggregates including total revenues, expenditures, and the fiscal deficit.”
In plain English, the IMF paper shows that (irrespective of the persons or parties in power) our actual revenues and actual expenditures have been far less than the amounts in the signed budgets; and our budget deficit, logically, has been more than we projected. This shouldn’t surprise most people. But IMF is not just telling us; it is showing us the depth of it with data and charts extracted from official documents. It has also identified the drivers of the deviations and offered prescriptions.
Nigeria’s fiscal “optimism bias” manifests a lot on both the revenue and the expenditure sides of the budget ledger. The paper shows that we projected to get more revenues than we actually did in 13 of the 14 years covered by the study. The difference between projected and actual revenues was 36% of actual revenues or 1.8% of GDP. These forecast errors affect all revenue sources but oil revenues are the main culprits. It was only in 2016 and 2020 that oil revenues were higher than budgeted. IMF calculated the forecast errors here as 61% of oil revenues and 1.1% of GDP. The underperformance by oil revenue is attributed mainly to errors in oil production forecasts, with oil theft and losses and petrol subsidies playing supporting roles. Notably, forecast errors used to be sizeable for non-oil revenues from VAT, CIT and Customs, but this is narrowing of recent though there are concerns about increasing deductions from net collections.
The expenditure side of the budget mirrors the revenue side. According to the report, the forecast errors here are also consistent, an average of 0.8% of GDP over the period. Here, capital expenditure is the main challenge, with forecast errors averaging 70% of actual capital expenditure. That’s another way of saying capital expenditure underperforms on the average by 70%. Interestingly, the routine extension of capital budgets into other financial years have not helped much.
“Despite capital budgets appropriations being extended to the following fiscal year, giving rise to concurrent budgets, underutilisation is persistent,” says the report. “Underutilised capital budgets from the year can be extended to the subsequent year to allow MDAs greater time to execute on their capital projects. However, this comes at the expense of delaying implementation of the capital expenditures budget of the current year, suggesting that MDAs do not have the capacity to execute both budgets simultaneously. This would suggest that forecast errors in one year have a snowball effect of generating larger forecast errors in the subsequent year.”
The study tracked fiscal forecast errors in Nigeria and 14 other countries. Nigeria, not surprisingly, has the highest scale of forecast errors as a portion of GDP. The report made a case for more credible budget forecasts in Nigeria and recommended, among others, the need to raise the profile and the capacity of the department charged with making fiscal forecasts, to undertake and publish regular performance reviews of forecasts, and to enhance political commitment to realistic forecasts.
These are sensible recommendations. But the IMF misses a trick by diagnosing this largely as a capacity or knowledge issue. To be sure, there might be some capacity dimension but that is not the core of the challenge. My sense, based on my work experience in the legislative and executive arms of government, is that there is an unwritten consensus to keep budgeted revenues and expenditures as bogus as possible. IMF may think that those who prepare, approve and implement the budgets do not know what they are doing. On the contrary, they know what they are doing. It is not inconceivable that they have done even deeper internal analyses but choose to maintain the status quo. Sometimes, political actors keep things that others might think are broken precisely because those things serve some unstated but important purposes.
I can think of two broad reasons why we consistently over-estimate revenues and expenditures. The first is the need to mask things or to create a rosy outlook or an optical illusion. I will illustrate this cultivated game of pretence with examples from recent budgets. For the 2024 financial year, the appropriated expenditure was N28.7 trillion, with a projected revenue of N19.6 trillion. We don’t have the budget implementation report for the whole of 2024. (This is one of the areas in which the quality and frequency of disclosures have fallen off under the current administration). Nevertheless, it is probable that both expenditure and revenue targets were not met by the end of the financial year. As a matter of fact, the 2024 capital budget has been extended till the end of this year. There is enough suggestion there about unmet targets, aside the untidiness of it all.
But in the space of a year, we are hoping to bump up expenditure by 92% (from N28.7 trillion in 2024 to a N54.99 trillion in 2025) and to hike revenue by 113% (from N19.6 trillion in 2024 to N41.8 trillion in 2025). However, this is not as illogical as it appears. The increase in the amount and proportion of allocation to debt service needs to be disguised. Debt service, a hard expenditure, had ballooned from N8.27 trillion in 2024 to N14.3 trillion in 2025. Also, with recurrent (non-debt), another hard expenditure, at N13.5 trillion, there was no way the 2025 budget could just be about the same level as, or just marginally higher than, the budget for 2024 because statutory transfers and capital have to be funded too. A way to solve both challenges is a substantial increase in the 2025 budget. You don’t want debt service to be showing up as almost half of the budget or debt service and non-debt recurrent expenditure to account for 80-90% of the budget. So, increase the whole to minimise the significance of some awkward parts.
Another deliberate pretence is the need to posture that we are spending more overall, especially on capital expenditure. An open secret is that capital component of the budget is usually the last to be released, and is usually released in bits and pieces and sourced mostly from borrowing. Over the time, and predictably, capital expenditure has been the most underperforming. But increasingly we have been allocating more in absolute and relative terms to capital budgets. In line with this masking fashion, the allocation for capital expenditure increased from N10 trillion in 2024 to N23.4 trillion in 2025 without any change in the implementation capacity or the process.
We need to evenly spread the make-up. So, the revenue projection would need to be touched up too (including by shooting up unmet oil production target of 1.78 mbpd in 2024 to 2.06 mbpd in 2025); and in taking care of this, we automatically keep the deficit pretty too. With a more than doubling of the revenue projection (from N19.6 trillion in 2024 to N41.8 trillion in 2025), then the deficit as a portion of the budget and of GDP looks presentable. (Recall that at a time, some parliamentarians trumpeted that the N13.08 trillion deficit was just 1.52% of GDP, falsely implying that Nigeria’s GDP had leapt to N860 trillion). It is a sophisticated game of self-deception, with many in on it. This deliberate, look-good game however is not without cost, as it inevitably translates to abandoned projects, soaring deficits and borrowing, poor service delivery, and declining trust in government.
(A related reason that can be attached here is that generally we treat government budgets as mere statements of intention. To be sure, the appropriation act is a law, but we don’t attach the sacredness of laws to budgets—except maybe for things like virement. There are no personal consequences for setting bogus targets or for failing to meet targets or for not implementing budgets. So, there is a mindset dimension too).
The second major reason for the bogus forecasts is about power relations between the legislature and the executive in a presidential system where patronage is the central organising principle. The parliament has the power of the purse, and parliamentarians as politicians are very motivated to spend heavily for public and personal reasons. Charged with initiating and implementing budgets and releasing funds, the executive holds the ace on budgets but is also wary of an extended standoff with the legislature.
Both sides manage this tension through exaggerated budget estimates, a form of consensus. The legislators at least get their way and can show their constituents what they have managed to put in the budget; and the executive receives the approval it needs and on time, then uses the precious power to ration the inevitably inadequate revenues to pick priorities and whip legislators and others into line. Un-fundable budgets might thus not be as irrational as they appear. There is clearly a political economy dimension to the errant forecasts by the two arms jostling for power over appropriation.
IMF can continue to think that what is showing up in our voodoo forecasting is a series of errors by people who don’t know what they are doing. Or that this is a challenge that is amenable to technical fixes such as training forecasters or publishing reviews of forecasts. There is a place for such recommendations. But it is also important to also factor in the adaptive and political dimensions of the challenge. Yes, IMF in that paper flagged the need for political commitment to more credible fiscal forecasts in Nigeria. The task is how to get the political authorisers to abandon a system that they have all the incentives to keep.
