Discover how the Naira’s continuous devaluation threatens Nigeria’s 2025 fiscal plan, with inflation, exchange rate fluctuations, and budgetary constraints creating significant challenges.
Naira Depreciation Threatens Nigeria’s 2025 Fiscal Targets
The sharp decline in the value of the Naira is setting up a challenging fiscal year for 2025, posing a significant threat to the Federal Government’s ability to fund its proposed budget. With a devaluation rate that has reduced purchasing power, experts warn that the N49.7 trillion budget presented by President Bola Tinubu may struggle to achieve the same impact as the N28.777 trillion budget of 2024.
Struggles with Exchange Rates and Inflation
The Central Bank of Nigeria’s (CBN) monetary policy reforms, aimed at stabilizing the currency, initially improved the Naira’s value but failed to sustain the gains. As of December 2023, the Naira traded at approximately N853 to $1. By December 2024, exchange rates surged to as high as N1,700 to $1, before settling at N1,536.93 to $1 on the CBN’s official platform.
In addition to exchange rate volatility, inflation continues to rise. The 2024 inflation target was set at 21%, but the current rate stands at 34.6%. For 2025, President Tinubu aims to reduce inflation to 15%, though achieving this may prove difficult.
Key Projections for the 2025 Budget
President Tinubu’s 2025 budget, dubbed the “Budget of Restoration: Securing Peace, Rebuilding Prosperity,” is built on several economic assumptions:
- Oil Price Benchmark: $75 per barrel
- Daily Oil Production: 2.06 million barrels
- Exchange Rate: N1,500/$1
- Inflation Rate: 15%
The proposed expenditure of N49.7 trillion includes allocations to defense (N4.91 trillion), infrastructure (N4.06 trillion), health (N2.48 trillion), and education (N3.52 trillion). Debt servicing alone will require N15.81 trillion, while other expenditures account for N17.12 trillion.
Challenges and Economic Achievements
Despite challenges, President Tinubu highlighted some economic improvements during the 2024 budget presentation. Foreign reserves rose to $42 billion, and Nigeria’s economy grew by 3.46% in Q3 2024, up from 2.54% in Q3 2023. Additionally, the trade surplus hit N5.8 trillion, reflecting increased export activity.
However, public sentiment remains cautious. The high “Japa” syndrome, where professionals emigrate due to economic hardship, underscores the challenges many Nigerians face. Critical sectors, such as healthcare and ICT, continue to experience significant brain drain.
Will the 2025 Budget Deliver?
The 2025 budget aims to restore peace and rebuild prosperity, but achieving these goals hinges on addressing macroeconomic issues like inflation and exchange rates. Without bold and effective reforms, the government risks falling short of its ambitious targets.
By stabilizing the Naira and curbing inflation, the Federal Government could pave the way for a more sustainable economic future. Only time will tell if the “Budget of Restoration” will fulfill its promises or become another missed opportunity for economic growth.
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