Nigeria’s 2025 budget crisis looms as IMF warns of rising deficits, oil revenue shortfalls, and urgent need to revise fiscal targets to avoid economic instability

Nigeria’s 2025 budget crisis is now a critical concern, following stern warnings issued by the International Monetary Fund (IMF) in its latest Article IV consultation report.

Also read: Nigeria’s Foreign Exchange Reserves show signs of recovery amidst global oil price challenges

The IMF cautioned that unless Nigeria urgently revises its fiscal targets and budget assumptions, the country risks plunging deeper into financial instability.

According to the report released on Wednesday, the IMF projects that Nigeria’s fiscal deficit could rise to 4.7 per cent of GDP in 2025, far exceeding the official budget target.

This looming shortfall is driven by declining oil prices, lower-than-expected production levels, and execution challenges in capital spending.

The IMF stated, “Absent policy actions, the fiscal deficit in 2025 would exceed budget expectations,” stressing the urgent need for recalibration.

One of the most pressing issues is the assumption that fuel subsidy savings will fully benefit the government.

“If the savings are not realised starting H2-2025 and tax reforms do not yield gains, cuts must come from recurrent spending,” the IMF noted.

The 2025 budget, based on optimistic hydrocarbon revenue projections, is now at risk due to a global slump in oil prices.

“The 2025 budget was based on optimistic hydrocarbon revenue projections, even before the price decline since April,” the IMF warned.

Compounding the problem is Nigeria’s historical struggle to implement large-scale infrastructure plans.

The IMF raised concerns about the government’s ability to deliver capital projects, casting doubt on growth projections.

“Budgeted capital expenditure is likely to exceed implementation capacity,” the report said.

It also highlighted Nigeria’s increasing debt burden. Public debt rose to 53 per cent of GDP in 2024, up from 49 per cent the previous year.

Without fiscal reforms, this figure could spiral further, worsening Nigeria’s vulnerability to external shocks.

To navigate the crisis, the IMF urged Nigeria to adopt a neutral fiscal stance and prioritise social protection.

“Scaling up safety nets is essential,” the report advised, citing the growing rate of poverty and food insecurity.

The IMF called for broader tax reforms, including the modernisation of value-added tax and corporate tax systems.

However, it acknowledged these reforms are unlikely to provide immediate revenue relief in 2025.

In response, Nigeria’s government has expressed commitment to revising the 2025 budget.

According to a statement by Mohammed Manga, Director of Information and Public Relations, Finance Minister Wale Edun reaffirmed the government’s proactive strategy.

“The implementation of the 2025 Budget is being carried out with a focus on safeguarding reform gains and ensuring economic stability,” Edun said.

The government maintains that increased oil production and subsidy removal savings will help fill the revenue gap.

It also aims to reduce external borrowing by leveraging private sector involvement through public-private partnerships.

Meanwhile, the World Bank has also expressed concerns. In its Nigeria Development Update, it described the 2025 budget as overly ambitious.

The report warned that Nigeria may need to rely on Central Bank financing to meet shortfalls.

The 2025 budget—Nigeria’s largest ever at ₦54.99 trillion—includes ₦23.96 trillion for capital expenditure and ₦14.32 trillion for debt servicing.

The budget assumptions peg oil at $75 per barrel, production at 2.06 million barrels per day, and inflation at 15 per cent.

However, Alex Sienaert, the World Bank’s Lead Economist for Nigeria, said, “It’s a very ambitious budget… it looks like it’s going to be pretty hard to meet some of the targets.”

In contrast, Budget Minister Abubakar Bagudu defended the projections. “They are all modest and aligned with our growth potential,” he said.

As debate continues, the IMF has urged Nigeria to improve fiscal forecasting and public investment management to enhance budget execution.

Also read: We are on mission to democratize tech, policy, prosperity with decentralised Nigeria conference – Rume Ophi

With external shocks and domestic challenges mounting, the clarity and realism of Nigeria’s fiscal planning in 2025 may define its economic future.