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Notes on the 2025 Budget Process
Postscript by Waziri Adio
After 58 days, the two chambers of the National Assembly concluded legislative work on the 2025 budget. They passed a unified appropriation bill of N54.99 trillion. This is a record on many levels. The most obvious is that, in Naira terms, the passed budget is our highest so far—about twice the size of the N28.77 trillion appropriated as the main budget for 2024. The 2025 budget has had quite an odyssey within two months of being: the initial proposal that President Bola Tinubu tabled before the parliament on 18th December 2024 was N49.74 trillion, which he bumped to N54.2 trillion via a letter to the National Assembly on February 5th; the legislators wholly and swiftly agreed to the president’s request but added N700 billion when they passed the budget a week later, bringing the approved expenditure to the record N54.99 trillion.
My intervention today will not be on the full budget. The disaggregated details are not yet publicly available and the appropriation bill is yet to be signed by the president. I will confine myself to some of the issues that the budget process has thrown up and to some of the headline figures that I have gleaned from media reports.
Let’s start with some of the numbers. As reported widely in the media, the N54.99 trillion expenditure is allocated as follows: N3.65 trillion to Statutory Transfers; N13.06 trillion to Recurrent (non-debt) Expenditure; N14.32 trillion to Debt Service; and N23.96 trillion to Capital Expenditure. There are a few things to unpack here.
On a positive note, the legislators allocated N300 billion to address the expected shortfall to our health sector from the pause of aid by the US government. This is part of the N700 billion that the parliamentarians added to the amended proposal from the president. Those who took the initiative to make this emergency provision should be commended. Health is critical. On a related note, we should be proactive in cutting our dependence on other countries as a way of reducing our vulnerabilities and increasing our leverage in the unfolding world order. That N300 billion is just 0.55% of the approved budget, an indication that Nigeria can easily wean itself off aid and insulate itself from the blackmail/arm-twisting that sometimes goes with it.
It is noteworthy that there are some significant differences in the aggregate figures in the version submitted by the executive and the version passed by the parliament (even after accounting for the addition by both parties). The president proposed N14.85 trillion as capital expenditure, but the legislators allocated N23.96 trillion to the same expenditure category. This is N9.11 trillion extra, an increase of 61%. This also means that capital budget (rather than debt service) now has the highest allocation, accounting for 43.57% of the approved total expenditure for 2025.
On the surface, this should be a good development: it could be read to mean that critical infrastructure is being prioritised. It is also being spun as such (even when not everything under capital is actually infrastructure or that everything termed infrastructure is really critical). But it appears something doesn’t add up. Even if we assume that the entire N5.23 trillion added by both the president (N4.53 trillion) and the legislators (N700 billion) goes entirely to capital appropriation, that should only take capital to N20.08 trillion. There is still a gap of N3.88 trillion to take the capital budget to N23.96 trillion. Most likely the difference is from the reduction from other expenditure heads, and that may have negative implications somewhere. The full budget will address this mystery.
However, it is possible that this is part of the customary optical game: let it appear as if we are allocating a lot to capital expenditure as opposed to awkward/embarrassing budget heads like debt service. But trumpeting that capital has the highest allocation is a game of self-deceit. Budgets are traditionally broken into two components: recurrent and capital. If that metric is adopted, capital even at 44% is still in the shadows of recurrent. Also, it is more useful to note that historically capital budget performs poorly in terms of actual release and utilisation (and this is not because of the convenient excuse of constraints imposed by the public procurement process).
In its original proposal of N49.74 trillion, the executive allocated N4.44 trillion to statutory transfers and N16.33 trillion to debt service. But in the approved budget of N54.99 trillion, the legislators reduced statutory transfers to N3.65 trillion and debt service to N14.32 trillion. As the name indicates, statutory transfers are statutory, sort of a first-line charge. It will be interesting to see where the legislators saw about N800 billion that they could shave off (will be interesting if it is from their own allocation). Debt service is seen as hard expenditure, something you need to do except you want to be in trouble. It comprises mainly the principal of and the interests on loans that fall due plus a little aside for the sinking fund. It will be good to know how the legislators are able to save the country more than N2 trillion in debt service. This can’t be from taking out the sinking fund (which was just N430.27 billion). It will be good to know what the trade-offs and the implications of the reduced debt service are, if any. Or was the initial debt service overestimated?
The legislators said the fiscal deficit in the approved 2025 budget will be N13.08 trillion. This was the same figure the president had proposed. I trawled the media, without success, for the projected revenue in the approved budget. But we can extrapolate that the projected revenue is N41.91 trillion since we know the total approved expenditure (N54.99 trillion) and the approved deficit (N13.08 trillion). We can have a separate discussion about how realistic this is, given how revenue projection has always underperformed. We may also think about what actual revenue shortfall may do to the eventual deficit, and how that is likely to further lock us into the vicious cycle of more debt and higher provisioning for debt service. We can deal with that in the future. In the meantime, there is also something that doesn’t add up here. The initial revenue projection by the president was N36.35 trillion and he requested that N4.53 trillion be added to the revenue column, which gives a total of N40.88 trillion. It seems that what the president projected as revenue (based on what is in the public domain) is N1.03 trillion less than what the legislators approved as projected revenue. A shortfall of N1 trillion can’t be from rounded figures. Maybe the full budget will provide illumination.
However, there is a more interesting dimension on the deficit issue: deficit-to-GDP. In his speech on 18th December 2024, the president stated that the N13.08 trillion envisaged as deficit would constitute 3.89% of Nigeria’s GDP, which is still higher than the 3% bar set in the Fiscal Responsibility Act but significantly better than the ratio for preceding years. As stated earlier, the legislators agreed with the president on the amount of the budget deficit (N13.08 trillion) but put the deficit as 1.52% of the GDP. This is a material difference. It is either there is a mistake somewhere or the legislators are using a different GDP figure. If N13.08 trillion is 1.52% of GDP, that means Nigeria’s GDP is N860.53 trillion. That will be quite a leap.
According to the National Bureau of Statistics (NBS), Nigeria’s nominal GDP was N234.43 trillion in 2023. The sum of the GDP figures for Q1 to Q3 of 2024 is N196.26 trillion, which means full-year GDP at best will be below N300 trillion (in the October 2024 World Economic Outlook, IMF estimated N302.18 trillion as Nigeria’s GDP for 2024). It is possible the legislators have been briefed about the rebased GDP numbers and they are using that as a basis for their computation even when the rebased GDP is yet to be officially released. Assuming this is the case and putting aside the propriety of such an approach, this implies a tripling of Nigeria’s GDP merely on account of rebasing. This will be quite something. And when such is applied to the metrics that government officials fancy (debt-to-GDP, deficit-to-GDP), it is likely to look like a clumsy walk to a predetermined answer.
While the legislators were about concluding the process of passing the 2025 budget, the president sent them what could be classified as an amendment or a supplement to the budget proposal. He did it via a letter, which was read by the presiding officers of both chambers. The president stated the total extra revenue and the global sources (N1.21 trillion from Customs; N1.49 trillion from FIRS; and N1.82 trillion from Government Owned Enterprises—GOEs), and he proposed how they should be allocated, including N1 trillion to the solid mineral sector, N1.5 trillion for the recapitalisation of the Bank of Agriculture, N500 billion for the recapitalisation of the Bank of Industry (BOI) and significant sums to key infrastructure projects and security institutions. The president said this was to demonstrate his administration’s commitment to “inclusive growth and security.” It is difficult to argue against the need for such.
But there are a few issues. The first issue is about process, and it is in two parts. The first part was reflected in the interesting exchange between Hon. Benjamin Kalu (Deputy Speaker and presiding officer on the day the president’s request was read in the House of Representatives), and Hon. Kingsley Chinda (the House Minority Leader). Hon. Chinda stated that it was improper for a budget from the executive to be read by a legislator but Hon. Kalu maintained otherwise, and overruled the opposition leader.
The exchange could pass for the usual face-off between the ruling party and the opposition. This is mostly done for the camera, and is normally resolved in favour of the majority (with the minority merely allowed to have its say). But the exchange strikes at a core procedural issue around presentation of budgets, including additions, supplements and virements, the level of details such requests should contain (lumpsum versus detailed breakdown) and the amount of time needed to study and process them. In the public sector, both substance and process are important. In fact, government is largely about process.
The second issue is about the proper order of things. The budget presentation is usually preceded by the approval of the Medium-Term Expenditure Framework (MTEF)/Fiscal Strategy Paper (FSP). The MTEF contains the key assumptions and the broad outlines for the proposed budget. But assumptions and outlooks can change. That is why amendment to the MTEF is allowed. After the president requested for an increase in the 2025 expenditure, the legislators should have insisted for the MTEF to be presented again and should have given the amendment expedited treatment. Amending the MTEF after passing the budget does not seem to pass the smell test. Again, process, process, process.
The request by the president brings to fore the curious case of the changing allocations to the solid minerals sector in this budget cycle. The president made a passionate case for extra N1 trillion for the sector, as many others in and out of government routinely do. My sense is that many of us miss the memo about how the solid minerals sector is structured differently from the oil and gas sector. State participation is limited to licensing and regulation and the revenue streams are restricted to fees, royalty, taxes and maybe fines, all of which are mostly paltry. We need to open up the sector and make it more attractive to serious players and incentivise processing/value-addition (what industry players term fancifully as beneficiation). That will be good for jobs, for taxes and for increased contributions to GDP. But we need to make peace with the fact that solid mineral is not going to be our big-ticket revenue stream.
Ploughing N1 trillion (almost 2% of the entire budget) into that sector in one year does not look like optimal resource allocation to me. I may be wrong. But the real point is the dramatic shifts in the allocation to the sector in the 2025 budget. It was reported that the Minister of Solid Minerals Development, Mr. Dele Alake, complained openly to the joint committee of the National Assembly that his ministry had requested for N531 billion for capital expenditure for the year but was allocated only N9.9 billion in the proposed budget.
“This is unacceptable, as it will hinder any significant investment in exploration,” Alake said. “We seek the support of the National Assembly for a radical upward review of the budget.” This is as bad a look as it can get, as those on the executive side have ample opportunities to make their case, especially during bilateral budget defence with the Budget Office and the Ministry of Budget and National Planning. In any case, the joint committee, with dramatic flair, rejected the budget proposed for the ministry by the executive.
The Senate Committee later recommended an increase in the capital budget of the ministry from N9.9 billion to N539 billion. This is mind-blowing. A legislative committee would contemplate increasing the proposed capital budget of a ministry by more than half a trillion Naira or by more than 5000%. It may be of interest that the capital allocation for the ministry in the 2024 Appropriation Act was N26.9 billion. Even if there is a compelling case for a major increase, did anyone bother about the absorptive capacity for a 20-fold hike?
I have worked in both the legislative and executive arms of government at the federal level, and I have been tracking budgets for a while. If I tell you I have seen anything like this before, I will be lying. But more was to come. The president further upped the ante: in his 5th February letter, he assigned N1 trillion to the solid minerals sector “to support economic diversification by unlocking the potential of Nigeria’s vast solid mineral resources, which remain an untapped revenue stream and a vital pillar of non-oil growth.”
Another issue is that there is a serious discussion that we need to have about the best way to use additional revenues. It is not immediately clear whether the N4.53 trillion that the president asked to be allocated to solid minerals and other areas is excess revenue from last year or projected extra revenue for this year. Whatever it is, it might be more prudent to use any extra revenue to reduce budget deficit than to increase immediate expenditure. This is because the deficit we kept has to be funded, and from borrowing, which would have to be paid and with interests. This, in turn, will increase future deficits and the amount to allocate to debt service. We cannot borrow our way out of this hole, and it is unconscionable to keep kicking the can down the road and, worse, to be mortgaging the future of the next generation. We desperately need to rein in deficits and borrowing. We need fiscal consolidation like yesterday.
The last issue I want to raise is the dip in disclosure in certain areas. A few weeks ago, I highlighted some notable omissions and incongruities in the proposed 2025 budget. No coherent answers have been provided. One omission that still sticks out for me is the non-disclosure of the budget of the GOEs. It is conceivable that the legislators received the proposed budgets of the GOEs and did a thorough job in scrutinising them. But there is no budget that should be obscured from public view. If the budgets of sensitive MDAs—including the presidency and security agencies—can be made public, what then is the defence for keeping the budgets of the GOEs off-limit?
I have found only two lines for GOEs in the proposed budget: N1.91 trillion for recurrent and N820.91 billion for capital. By contrast, the Budget Office of the Federation made public the 2024 proposed budgets of 26 professional bodies and 63 GOEs. The latter, a 282-page document still available on Budget Office’s website, provided granular details and a window into the profligacy and misapplication of scarce public resources going on in these entities. It is likely that a decision was made to stop the disclosure of the budgets of the GOEs because of the mild public outrage of last year. But these entities are still public, not private. And the budgets of the presidency and others attract constant reactions from the public and they still get published. So, what is special about these agencies? Once a standard is established, we need to maintain, not subvert, it. Transparency in the management of public resources is a virtue that we should never go back on.
