The World Bank has described Nigeria’s 2025 federal budget as overly ambitious, warning that the Federal Government may be forced to turn to the Central Bank of Nigeria’s Ways and Means facility to finance likely revenue shortfalls.

The Bank gave this warning on Monday during the public presentation of its latest Nigeria Development Update report titled ‘Building Momentum for Inclusive Growth’ in Abuja.

President Bola Tinubu signed the 2025 Appropriation Act into law, approving a record budget of N54.99tn, the highest in Nigeria’s history.

The budget was raised from the initial proposal of N49.7tn submitted to the National Assembly.

The fiscal plan makes provisions for N13.64tn in recurrent expenditure, N23.96tn for capital projects, N14.32tn for debt servicing, and N3.65tn for statutory transfers, while projecting a deficit of N13.08tn, to be financed through domestic and external borrowing.

The budget assumptions include a crude oil benchmark of $75 per barrel, oil production at 2.06 million barrels per day, an average exchange rate of N1,400/$, and an inflation target of 15 per cent.

Speaking at the event, the World Bank’s Lead Economist for Nigeria, Mr Alex Sienaert, said that despite strong revenue gains recorded in 2024, Nigeria’s 2025 budget assumptions remain optimistic and may prove difficult to meet.

He said, “It’s a very ambitious budget. Even with the very positive revenue sort of tailwind that we have… even considering that, it looks like it’s going to be pretty hard to meet some of the ambitious revenue targets that are in there.”

According to him, key assumptions such as average daily crude oil production of 2.1 million barrels per day and a benchmark oil price of $75 per barrel are unlikely to hold, noting that current production figures are closer to 1.6 million barrels per day.

He also cited uncertainty over how much revenue would flow from the removal of the petrol subsidy and the planned windfall tax on foreign exchange gains, saying these could weaken the Federal Government’s revenue position.

“This is important because if it does turn out that the revenue targets are not met, then that could mean that the financing requirements are more than budgeted. And if the financing requirements exceed what’s budgeted, then that’s either going to create arrears pressures… or it could renew risks of recourse to things like deficit monetisation under large-scale Ways and Means,” he said.

Sienaert warned that although Nigerian authorities had pledged not to resort to the CBN’s overdraft facility, doing so again could derail the country’s fragile macroeconomic recovery.

“The authorities have been very clear that they will by no means be going back to large-scale use of Ways and Means, but were that to happen, it would be just extremely disruptive to the whole rebuilding of confidence in fiscal sustainability and in the naira ultimately,” he noted.

On broader fiscal matters, the World Bank called on the Federal Government to eliminate the electricity subsidy, which it described as a “wasteful, regressive subsidy.”

Sienaert said key fiscal reforms such as the removal of the petrol subsidy and the adoption of a market-reflective exchange rate had helped improve the government’s fiscal position, but further reforms were needed.

“There’s still a range of fiscal policy and fiscal management issues where more can be done to safeguard the gains that have already been achieved… just to name, there is still one kind of wasteful regressive subsidy, which is the electricity subsidy. So work to address that,” he said.

He also advocated for improved oil revenue transparency and a reduction in the cost of governance, saying efforts to increase non-oil revenue must continue.

Sienaert noted that although the Nigerian National Petroleum Company Limited began applying official exchange rates for fiscal transactions in October 2023, only half of the revenue gains from the subsidy removal had been remitted to the Federation Account by January 2025.

“It’s just going to be important in the coming months to keep tracking this, and ultimately that the full revenue gains from the difficult job of eliminating the subsidy do flow to the Federation so that that can support a continued healthy fiscal picture and, in turn, spending on development priorities,” he said.

On inflation, the World Bank economist said monetary policy reforms had helped reduce inflationary pressures but noted that consumer prices remained high.

“We do need to acknowledge that price pressures remain elevated,” he said. “The battle against inflation continues, and to extend the military analogy a little bit, there’s a kind of fog of war… quite dense just at the moment.”

He added that recent changes to the Consumer Price Index by the National Bureau of Statistics had made it difficult to determine the current trend in inflation, noting, however, that continued coordination between fiscal and monetary authorities would be critical to restoring confidence.

The World Bank further urged the government to ramp up implementation of its targeted cash transfer programme aimed at cushioning the cost of reforms on poor households. The programme currently offers N25,000 monthly for three months to 15 million recipients.

“The implementation has just been quite slow. So only about a third of those recipients have received transfers so far. The good news is that this is being scaled up… and just important that that effort really continues so that as many people as possible get help,” Sienaert said.

Looking ahead, he called for a new growth strategy based on a “private-led, public-facilitated” model.

The World Bank also stressed the need to reduce costs of governance, including cutting “wasteful expenditures that are not essential, such as purchase of vehicles, external training, etc.” and reducing “the cost of collection of GOEs (FIRS, NCS, NMDPRA, NUPRC, etc.).”

He emphasised the need for increased investment in education and health, noting that Nigeria’s combined spending in these sectors remained among the lowest globally.

“In 2022, Nigeria was only spending 1.2 per cent of GDP on education and 1.8 per cent on health, or $23 per Nigerian per year on education, $15 per Nigerian per year on health,” he said.

He said private sector growth must also be supported by improving the competitive landscape and reviewing trade policies that restrict access to essential production inputs.

“Competition is like the sort of secret sauce that drives innovation and economic transformation. And in Nigeria, there’s some evidence… that actually there are elements of competition policy, and there are conditions that are needed for good competition that actually even compared to some of Nigeria’s immediate peers… the Nigerian competitive landscape lags some of those,” he said.

The Bank believes that following through with these reforms will position Nigeria to achieve its goal of becoming a $1tn economy by 2030.

President Bola Tinubu’s Special Adviser on Economic Affairs, Dr Tope Fasua, has defended the value of the naira locally despite its weakness against the dollar, saying that $1, equivalent to over N1,500, can still buy a meal in Nigeria.

Fasua, who spoke on the Mic On Podcast hosted by Seun Okinbaloye on Saturday, also addressed how poverty is measured globally, saying many Nigerians misunderstand what is termed “multi-dimensional poverty.”

He said, “Some people don’t understand the meaning of multi-dimensional poverty.

“They think multi-dimensional poverty is worse than food poverty. What multi-dimensional means is that maybe the school your children attend is too far from you, or the hospital, and they categorise you as multi-dimensional.”

He argued that while the naira may appear weak when compared to the dollar, its purchasing power remains strong in local contexts.

“$1 is N1,500 – it’s a lot of money for many people in Nigeria. $10 won’t buy you lunch anywhere in the US, sometimes you need at least $20, that is N30,000 in Nigeria,” Fasua stated.

Offering examples from everyday life, Fasua added, “I will tell you what you can do with $5 – that is N7,500 – if you are not going to eat in some highbrow places. In Gwarinpa, there are some people that sell Boli and fish and you will eat for N1,500. If you know where you are coming from.

Experts at investment house Afrinvest have asserted that Nigeria’s debt profile requires immediate action to forestall further deterioration.

This was stated in their latest macroeconomic update titled ‘Nigeria’s Debt Statistics… High Risk or Not?’ which dwelt on the outcome of the recent country visit of IMF’s First Deputy Managing Director, Gita Gopinath.

During the visit, Gopinath described Nigeria’s debt level as moderate rather than high risk, offering a somewhat optimistic assessment of the country’s fiscal position.

On Nigeria’s debt sustainability, Gopinath said, “We (IMF) assess debt sustainability for countries every year, and we did this for Nigeria in our report for 2024. Our assessment was that the risk of sovereign stress for Nigeria is moderate and not high risk.”

She, however, warned that the IMF’s verdict was not a license for the country to take on more debt, saying, “No, I will not go that path. The point is that you want to stay moderate, and you don’t want to move into a high-risk debt level. I just want to highlight the fact that while the country’s sovereign debt is said to be moderate, we are living in a world with a lot of shocks and a large amount of uncertainty.

“And if you look at the interest payment as a share of revenues, 75 per cent of revenues go into interest payment. That means there is hardly any money for social support or development spending. Therefore, to make sure that debt stays at a manageable level, it is also important to do more domestic revenue mobilisation.”

Gopinath also emphasised that savings from fuel subsidy removal should be redirected into government reserves rather than spent inefficiently.

Overall, the IMF Deputy Director stressed the need for Nigeria to optimise its revenue streams by strengthening tax collection, curbing leakages, and ensuring fiscal discipline.

Reacting to the visit, experts at Afrinvest, in their macroeconomic update, aligned with the IMF’s view that a long-term strategy should prioritise reducing reliance on debt and strengthening Nigeria’s fiscal position through prudent spending, improved tax collection, and efficient budget allocation, all within the framework of real economic growth.“However, we believe Nigeria’s debt profile demands immediate action to prevent further deterioration. Recall the Q3:2024 debt statistics published by the Debt Management Office, which showed that total public debt surged to N142.3tn—the highest nominal level on record—driven by a widening budget deficit and the adverse impact of exchange rate depreciation on external debt.

“Specifically, domestic debt rose 3.3 per cent quarter-on-quarter to N73.4tn, marking a 24.2 per cent increase as of 9M:2024. The local debt accounted for 51.6 per cent of total public debt—within the DMO’s 70.0 per cent domestic debt mix cap. Meanwhile, external debt jumped 9.2 per cent q/q to N68.9tn, reflecting an 80.2 per cent increase, largely due to the continued depreciation of the naira, which fell 11.9 per cent in Q3 to average N1,579.22/$,” the investment house stated,.

The analysts pointed out that the total public debt-to-GDP ratio reached 52.8 per cent (based on 9M debt and FY nominal GDP), exceeding the 40.0 per cent limit set in the 2020–2023 Medium-Term Debt Management Strategy and nearing the 55 per cent risk threshold for developing countries.

Speaking on the high debt servicing allocation in the 2025 budget and deficit, the Minister of Budget and Economic Planning, Atiku Bagudu, revealed that a sustained positive economic condition may reduce it.

Bagudu said this on Monday at the KPMG budget 2025 day aired on Arise TV. He said, “On the deficit of N14tn, given what we saw is the innovative approaches to financing, first, because you don’t have recourse to the Central Bank of Nigeria at all. So, under no circumstance would the Central Bank be going above the legal limit of five per cent. So, we are going to market, and we are going to market in different ways. Innovative financing and innovative approaches: local bonds have been issued where governments have raised money. This, of course, represents a statement of intention, just to ensure that those whom we have borrowed from will be confident that we will have enough to meet our debt service obligation. But if, as we anticipate, economic conditions will continue to improve, we may not need to spend up to that in debt service.”

Meanwhile, Jimi Ogbobine, head of Agusto Consulting, a subsidiary of Agusto & Co., has asserted that the current administration of President Bola Tinubu was a big-spending government, hence heightened concerns about the fiscal deficit.

Speaking at the rating firm’s 2025 Economic Roundtable, Ogbobine said, “For Nigeria, we have about 10 key uncertainties, the first being our debt sustainability. Nigeria’s debt sustainability is a key worry point for us, so we have to pay attention to it. Many of us say that our political parties do not have ideologies, but that is not absolutely true. They may not have it in theory, but they have it in practice. This current party is a big government party, and that is why debt sustainability is a key concern. Nigeria’s Fiscal Responsibility Act says that fiscal deficit should be three per cent of the GDP. It is not a law; it is guidance even though it is written in a law.”