The 2024 National Budget: Key Factors That Could Make or Break It
The Nigerian government is currently faced with a delicate balancing act in relation to the success of its ambitious 2024 budget. The economy is heavily dependent on efforts to combat oil theft and bolster non-oil revenue, making the achievement of the budget contingent on the effective management of these pivotal factors.
President Bola Tinubu recently authorized the N28.7 trillion 2023 Federal Government budget. This came after lawmakers increased the budget from the initially proposed N27.5tn to N28.77tn. Clearly, there is a need to generate more revenue in order to cover this increase.
Oil stands as a primary source of income for the Nigerian government, with the budget accounting for an oil price of over $78 per barrel and a production target of at least 1.78 million barrels per day (bpd). Encouragingly, some analysts have projected even higher levels of oil pricing. Major financial institutions have established their 2024 Brent price projections between $83 per barrel and $90.
Nevertheless, the ongoing issue of oil theft poses the most significant threat to the 2024 budget. Aisha Mohammed, an energy analyst at the Lagos-based Center for Development Studies, underscored the challenges faced by the government in meeting revenue targets and executing planned projects if decisive action is not taken to combat these illicit activities.
The consequences of large-scale theft and under-investment in infrastructure have been substantial, resulting in a reduction in oil production. In April of last year, Nigeria produced less than one million barrels of oil daily, well below its 1.8mn bpd Organisation of Petroleum Exporting Countries quota.
In addition to the dependence on oil revenue, the government is also seeking to bolster income from non-oil sectors. Revenue from non-oil sectors surpassed that of oil by N1.5 trillion in 2022. However, experts such as Peter Medee, an associate professor of economics at the University of Port Harcourt, emphasize that Nigeria cannot rely solely on non-oil revenue.
The federal government aims to reach N18.32 trillion in projected revenue, with a substantial portion expected to come from oil revenue. Other sources include contributions from Government Owned Enterprises, non-oil taxes, independent revenue, minerals and mining, and other revenue sources.
However, there are risks to non-oil revenue growth, including challenging macroeconomic conditions, sustained foreign exchange weakness, and elevated inflation levels, as indicated in the 2024 outlook of financial service firm Veitiva Capital.
The overall budget deficit for 2024 is N9.18 trillion, equivalent to 3.88 percent of GDP. To finance this deficit, the government is relying on borrowing, proceeds of privatization, and drawdown on multilateral and bilateral loans secured for specific development projects.
In a bid to diminish the dependence on borrowing to finance public expenditure, the government also plans to enhance its tax-to-GDP ratio to at least 18 per cent within three years, as part of a broader effort to establish a more sustainable financial model.
Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, disclosed plans to create a fairer tax system, including a reduction in the corporate income tax rate to stimulate business growth.
The objective is to simplify the tax system, focusing on the top eight taxes, which account for 99 percent of the revenue. By establishing structures and systems around tax collection, the government seeks to elevate compliance and ultimately increase tax revenue.
In conclusion, the success of Nigeria’s 2024 budget hinges on several critical factors, and addressing the issues surrounding oil theft and non-oil revenue will be pivotal in ensuring that the budget achieves its revenue targets and facilitates the execution of planned projects.
