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A recently released report by the Central Bank of Nigeria (CBN) reveals that the Federal Government of Nigeria recorded a fiscal deficit of N3.68 trillion in the first five months of 2023. This deficit has raised concerns among members of the Monetary Policy Committee (MPC) due to the combination of low revenue and high fiscal deficit.
Mike Obadan, a member of the MPC, expressed his apprehension about the impact of the fiscal deficit on the economy. He emphasized the need for the government to reform its expenditure patterns to address the significant fiscal shortfall.
Obadan stated, “The fiscal deficit of the country is a structural factor that has continued to drive inflation upwards. In the first five months of 2023, the Federal Government recorded a fiscal deficit of -N3.7tn, and this has implications for inflation considering the monetary methods of financing it.”
He further added, “However, deeper and broader reform of public expenditure is imperative. The new government needs to scrutinize the structure of public expenditure to eliminate unproductive and wasteful expenditures. This means that the government should carry out meaningful fiscal consolidation to complement the Central Bank’s tight monetary policy stance aimed at curbing stubborn inflation.”
The CBN’s economic report for Q1, 2023, highlights that recurrent expenditure accounted for 84.6%, capital expenditure for 9.8%, and transfers for 5.6% of the Federal Government’s spending during that period.
Another MPC member, Omamegbe Mo’, noted, “The combination of declining revenues and increasing expenditures has led to a growing fiscal deficit, necessitating borrowing and potentially contributing to inflationary pressures. The underperformance of the oil sector, coupled with unsustainable fuel subsidies, further exacerbates the fiscal issues.”
These concerns underscore the importance of addressing the fiscal deficit through prudent fiscal management to ensure economic stability and sustainable growth in Nigeria.
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