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Nigeria’s 2025 economic outlook 10 Jan 2025

Global economic growth will be unchanging in 2025 compared with 2024. In its latest World Economic Outlook, the IMF projects global growth at 3.2% in 2025, matching its final forecast for 2024. The absence of variation in growth across this two-year period appears in both the Advanced Economies, where GDP growth rate is projected to remain at 1.8%, and in Emerging Market and Developing Economies, remaining at 4.2%. This is not a very positive outlook. According to the IMF, global economic growth is expected to remain “stable” but “underwhelming.”

Nigeria’s GDP growth rates are not projected to be flat over the same period. But the change in growth, from 2.9% in 2024 to 3.2% in 2025, is quite marginal. The 2025 forecast falls quite short of a double-digit growth rate, which the economy can achieve, or 6% growth, which is believed to be a necessity for the country’s economic turnaround after a decade of negative growth and weak recovery.

The Nigerian policymakers understand that the current trend rate of economic growth will not help much. Accordingly, they have been talking up the economic outlook. In the 2025-2027 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP), growth in 2025 is projected at 4.6%. But this projection of inflation-adjusted growth is challenged, in light of the quixotic projection of inflation dramatically falling from 34.6% in November 2024 to an average of 15% in 2025 while maintaining inflationary policies – removal of fuel subsidy and currency floatation. With these policies having been in place for more than one fiscal year, their inflationary impact will start to wane in 2025 but not as much as projected in the budgetary frameworks. Therefore, IMF believes Nigeria’s inflation rate will fall to 25% in 2025.

The 2025 Appropriation Bill, now before the National Assembly, provides broader proposals to drive optimism on a significant positive change in the economy. At N49.7 trillion, the proposed total expenditure in the year represents an 80.7% increase over the 2024 budget. But three perennial issues will likely undermine this year’s expansionary budget like the previous ones. The first issue is underfunding, which could be caused by significant shortfalls in the N34.8 trillion projected revenue in 2025 as well as inadequate funding of the N13.4 trillion deficit. This abiding risk resulted in the release of only 35% of the budget for capital expenditure in 2024 as of the third quarter of the year. The persistent underfunding reduces the budgets from being a product of meticulous fiscal planning to an instrument for expressing sheer economic ambition.

Second, disproportionately large percentages of the budgets are allocated to non-debt recurrent expenditures. In the 2025 budget proposal, N14.1 trillion, which represents 28.4% of the total appropriation, has been allocated to non-debt recurrent expenditure. Because the bureaucracy is incompetent, and as a result of weak value for money in public procurement – apart from high level of corruption – this share of the budget is largely unproductive.

Third, and perhaps the most serious, the budgetary process lacks the level of rigour that is required for effective fiscal policymaking. Every year, policymakers routinely fix five budgetary benchmarks: oil production, oil price, exchange rate, inflation rate, and GDP growth rate. But the budgetary assumptions often play out to be unrealistic. Overreliance on budget deficits is another indulgence of the policymakers. In 2025, debt service cost/the Sinking Fund will gulp N16.3 trillion or 44.9% of government revenue, even as the deficit is projected at N13.3 trillion.
 
Without political accountability for budgetary failure, the urge to improve the process is absent. Instead, the issues are manifestly growing worse. A seemingly poor coordination of the budgetary process for 2025 sees the MTEF/FSP stipulate an exchange rate of N1,400 to the US dollar. But the draft budget presented to the National Assembly fixed the exchange rate at N1,500/$1. Based on the different exchange rates, a discrepancy of N5.6 trillion exists in the proposed oil revenue, which would impact fund accruing to the Federation Account in 2025, either on the upside or downside. Also, a discrepancy of N1.8 trillion now exists between the total budget as stipulated in the approved MTEF/FSP and the value proposed in the appropriation bill.

What, then, should Nigerians realistically expect from this flawed budgeting process? It is fair to say, “not very much.” Between 2014 and 2025, the yearly budgets have increased by 1004%. During this period, however, poverty has worsened. Last month, over 70 Nigerians, including 35 children, died in stampedes at Christmas charity events. Either deliberately or because of lack of technical and managerial know-hows, the government is not able to deliver poverty-alleviating programmes that the people need to survive and that the economy needs to grow.

The impact of the 2025 budget on the private sector would be mixed. Investors will continue to make money from buying government bonds offering high yields. But the deficit-financing programme will also continue to crowd out business borrowers. More generally, the private sector will continue to feel the negative impact of the burden of high debt service cost on the ability of the government to deliver needed infrastructure and improve the business environment.

Despite the song and dance over it, the jumbo 2025 budget would likely lock in another year of weak economic performance. But if, in simple terms, the government would incentivise production and consumption, which requires shelving the proposed VAT rate increase, 2025 could be a better year for most Nigerians than 2024.

Notwithstanding what appears as a dismal fiscal outlook for Nigeria, I wish you a happy and prosperous 2025.

Jide Akintunde is Managing Editor, Financial Nigeria publications. He is also Director, Nigeria Development and Finance Forum.