Tinubu’s ambitious revenue plan for 2024 faces a peculiar challenge

Nigeria aims to nearly double its revenue in 2024 to N17 trillion, the country’s highest ever, which could reduce the budget deficit to its lowest level in years. But raising that much could be problematic, as with past years.

The government has proposed a budget of N26 trillion for next year but will provide full details to the National Assembly by the middle of November. The proposed 2024 revenue of N17 trillion compares to N9.73 trillion in 2023 and N8.12 trillion in 2022.

Ben Akabueze, the head of the budget office, provided more insight on Monday on what the spending plan might look like.

“We are going to spend 26 trillion and we are looking to raise 17 trillion in revenue and the balance in debt,” Akabueze said at the Nigerian Economic Summit in Abuja, attended by President Bola Tinubu.

The proposal projects a N9 trillion shortfall, to be financed through new borrowings. This is lower than the N11.3 trillion deficit in 2023, although higher than the N6.25 trillion and N6.44 trillion deficits in 2022 and 2021, respectively.

But the proposal reveals an ambitious revenue projection, suggesting that unlike past years, the Tinubu administration is hoping to raise revenue at a scale previous governments could not.

A high revenue, if achieved, will push Nigeria’s fiscal deficit to GDP ratio to around 3%, the lowest since 2019.

Aligning with IMF

The high-revenue approach for reducing budget debt aligns with a recommendation by the International Monetary Fund, which in September advised African nations to cut deficit by raising more money.

“Sub-Saharan African countries tend to rely excessively on expenditure cuts to reduce their fiscal deficits. Although this may be warranted in some circumstances, revenue measures, like eliminating tax exemptions or digitalizing filing and payment systems, should play a greater role,” said an IMF six-member team led by Fabio Comelli.

The economists advised that, “mobilizing domestic revenue is less detrimental to growth in countries where initial tax levels are low, whereas the cost associated with reducing expenditures is particularly high given Africa’s large development needs.”

Countries that have adopted that approach are The Gambia, Rwanda, Senegal, and Uganda, which relied on a mix of revenue administration and tax policy measures.

Realizing it?

With low oil production and tax returns, Nigeria’s actual revenue typically fell short of expectations in past years, widening the deficit gap.

In 2024, the government hopes to earn more from crude oil, with the budget proposal based on oil price benchmark of $73.96 and an exchange rate of 700 naira to the dollar.

The presidency said in September the country expects to lift oil production to 2.1 million barrels per day (bpd) by the end of 2024 after oil companies operating in the country committed investments of $13.5 billion in the short term.

Oil production stood at 1.41 million bpd in August, up 8%from July, data from the petroleum regulator shows. The country is also expected to increase tax revenues.