As Nigeria grapples with a tough fiscal year ahead, concerns are mounting over the capacity of the Federal Government to fund its ambitious 2025 budget.
A sharp devaluation of the Naira and persistent inflation have placed significant strain on the country’s financial outlook, raising doubts about whether the proposed N49.7 trillion budget can deliver the expected goods and services.
The key challenge lies in the substantial reduction of the real value of the budget, primarily due to the Naira’s continued depreciation.
In the past year alone, the local currency has faced a steep decline, with financial experts warning that unless corrective action is taken, the budget will effectively shrink in purchasing power.
What could have been achieved with N28.777 trillion in the 2024 budget may not be attainable with the N49.7 trillion slated for 2025, as the devaluation severely diminishes the capacity to deliver on key government priorities.
The Central Bank of Nigeria’s (CBN) new foreign exchange policy, introduced with the aim of stabilizing the Naira, has thus far failed to yield lasting results.
Initially, the policy saw a brief improvement in the currency’s value, but these gains quickly reversed within a matter of weeks.
In December 2023, the exchange rate stood at around N853/$1, and by the end of 2024, it had escalated to over N1,700/$1.
As of December 21, 2024, the rate on the Central Bank of Nigeria’s website indicated N1,536.93/$1, a reflection of the ongoing volatility in the foreign exchange market.
President Bola Tinubu, in his address to the National Assembly, acknowledged the steep depreciation of the Naira, which has become a major headache for policymakers.
In his projections, he aimed for an exchange rate target of N800/$1 for the 2024 budget. However, the actual market conditions have seen the currency dip as low as N1,800/$1 before showing any sign of stabilization.
The fluctuations in the Naira’s value continue to undermine the country’s economic prospects, leaving both businesses and individuals uncertain about their financial futures.
Inflation remains another key issue in Nigeria’s economic management. The persistent upward trajectory of inflation has had far-reaching effects, eroding the purchasing power of Nigerians and contributing to the growing cost of living.
In an attempt to curb inflation, the CBN has been raising its Monetary Policy Rate, which impacts the cost of borrowing and, ultimately, the broader economy. Yet, the effectiveness of these rate hikes has been limited, with inflation showing no signs of slowing down.
Experts warn that unless the government takes decisive steps to stabilize the Naira and rein in inflation, Nigeria’s fiscal policy may continue to face challenges.
As the country moves into 2025, the implementation of the new budget will depend heavily on external factors such as oil prices and the success of the CBN’s foreign exchange policy.
Without significant improvements in these areas, Nigeria may struggle to meet its developmental goals.
With a volatile foreign exchange market, high inflation, and a devalued currency, the 2025 budget faces an uphill battle in delivering the goods and services Nigeria so desperately needs.
The government’s ability to navigate these economic challenges will be crucial in determining the country’s financial stability in the months and years ahead.
