Nigeria approves ₦47.9trn 2025 budget - plans $1.7bn Eurobond

Nigeria's Federal Executive Council has approved a proposed budget of 47.9 trillion naira for the 2025 fiscal year, marking a significant leap from the previous budget of 27.9 trillion naira in 2024. The Minister of Finance and Coordinating Minister of the Economy also revealed the government's plan to raise $1.7 billion through the issuance of Eurobonds to address revenue shortfalls. Steve Osho, Co-Managing Partner and Head of Advisory at Commercio Partners, shared insights on the ambitious budget and the challenges Nigeria faces in achieving its economic targets. Osho commended the government for its bold approach in proposing the 2025 budget, describing it as audacious. However, he expressed concerns about the achievability of the budget targets, citing discrepancies in key economic indicators such as crude oil production, inflation rates, exchange rates, and GDP growth projections. The budget's assumptions, including a crude oil production target of over 2 million barrels per day, pose a challenge as Nigeria currently produces around 1.6 to 1.7 million barrels a day. The exchange rate volatility in the Nigerian market has been a longstanding issue affecting budget planning and economic stability. Osho emphasized the importance of addressing the exchange rate problem by focusing on developing local industries, supporting SMEs, and promoting exports to reduce dependency on oil revenues. He highlighted the need for a stable exchange rate to manage budget allocations effectively and stimulate economic growth. Regarding the government's plan to issue Eurobonds, Osho noted a shift towards foreign borrowing to diversify the country's debt portfolio. The recent decline in bond yields has made the Eurobond market attractive for investors, prompting sovereign entities like Nigeria to consider tapping into this space. Osho viewed the move as a strategic decision to capitalize on lower borrowing costs and achieve a balanced mix of local and foreign borrowings. However, concerns loom over Nigeria's debt sustainability as the country grapples with escalating debt levels. The debt-to-GDP ratio, which stood at around 3.26 in the 2024 budget, has surged to approximately 7.5, raising alarms about the government's long-term financial stability. Osho underscored the importance of investing borrowed funds in productive sectors to stimulate economic growth and reduce the need for continual borrowing for recurrent expenses. In conclusion, Nigeria's ambitious budget for 2025 signifies the government's commitment to economic expansion and development. While the budget targets are ambitious, the country faces challenges in aligning economic indicators and managing external factors like exchange rate volatility. By addressing key issues such as exchange rate stability, debt sustainability, and strategic investment of borrowed funds, Nigeria can pave the way for sustainable economic growth and financial resilience.