The federal government may need to create a supplementary budget to accommodate the proposed minimum wage increase for workers.
This is because the amount negotiated may exceed the amount in the original budget for fiscal 2024.
The International Monetary Fund made this recommendation in its latest staff country report on Nigeria.
“Authorities have indicated that addressing the outcome of ongoing wage structure negotiations may require a supplementary budget that could exceed the amount included in the 2024 budget,” the report said. says.
It also pointed out that the government may need to increase domestic and external borrowing limits to prevent new borrowing from the apex bank’s instruments and instruments.
A new minimum wage has been an ongoing issue between organized labor and the government since the beginning of this year, in a bid to cushion the effects of a tough economy.
Nigeria’s recent reforms, including the removal of fuel subsidies and the integration of foreign exchange markets, are pushing the cost of living to new levels.
Labor leaders are demanding between N30,000 and N615,000 for the lowest-ranking workers, but the tripartite committee may recommend a new minimum wage of N70,000. There are also signs.
In the 2024 budget, the government allocated 6.48 trillion naira for personnel costs, but international financial institutions claim the amount may be insufficient.
The IMF also noted that the country’s 2024 budget deficit is expected to be higher than expected due to higher debt interest and implicit subsidies for fuel and electricity.
Finance Minister Wale Edun said the government plans to reduce the fiscal deficit from 6.1% in the 2023 budget to 3.8% in this budget.
“Staff expects the fiscal deficit in the 2024 budget to be larger than expected, but largely unchanged from 2023, reflecting the IMF’s oil price forecast,” the report said. “This is due to a decline in oil and gas revenue forecasts that take into account recent production increases.” Increased implicit fuel and electricity subsidies. Continued suspension of excise tax measures included in the MTEF. And the interest burden will also be higher.
The staff factors in capital expenditure underperformance in line with past experience and estimates the FGN deficit to be 4.5% of GDP, compared to the 2024 budget target of 3.4% of GDP. This means that for the unity government, the budget deficit in 2024 is projected to be his 4.7 percent of GDP. In comparison, his GDP in 2023, measured in fiscal terms, is 4.8 percent. This is appropriate given the large societal needs and realistic pace of revenue. mobilization.
“Over the medium term, the staff plans to improve the non-oil underlying deficit. Higher interest costs will stabilize government debt towards the end of the forecast period.”
Meanwhile, the report called on the government to consider meeting financing needs through the market or external borrowing.
“Based on staff projections, authorities should increase domestic and international borrowing limits to prevent new reliance on CBN financing,” the report said. Market players have indicated that banks and non-banks should have enough appetite if interest rates rise, but only on the condition that system liquidity increases, such as lowering cash reserve requirements, which are currently high. Careful management of sexuality is a condition.
“Staff projects that the government’s net financing needs in 2024 will be met by market and external borrowing. Domestic market financing should increase by 1.5% of GDP by 2023. This means borrowing 2.5% of GDP from the CBN through the issuance of further domestic securities.
It added: “Although officials agree that funding options should be zero by the end of 2024 in accordance with the law, authorities are considering other options, such as drawing down government deposits, to avoid crowding out private sector credit.” We may need to consider that,” he added. The CBN will be established in 2023 or a second securitization operation will be undertaken to address this legacy issue.
“Although the cost of external financing is higher than the last time Nigeria accessed the Eurobond market, staff support the opportunistic issuance, given the looming maturity in 2025. Eurobond issuance and some public financing are factored into staff forecasts as an integral part of the 2024 financing mix.
