Higher CAPEX, Lower Debt Risk, Lower Debt Finance
On Wednesday, 29 November 2023, President Bola Ahmed Tinubu presented his first federal budget, the 2024 Budget, to the joint sitting of the Nigerian Parliament, with a capital component that exceeded the recurrent expenditures for the first time in 4 years.
This shift towards capital projects may be linked to the goals of the 2024 budget, named “The Renewed Hope Budget,” which include poverty alleviation, increased access to social security, macroeconomic stability, improved investment climate, and economic growth that creates jobs.
However, just as the Capital Expenditure (CAPEX) is the highest in 4 years, so is the cost of Servicing the country’s accumulated debts the highest but one.
The 2024 CAPEX, which doubled that of the previous year, comes along with a Debt Servicing cost over a quarter of the approved N28.78 trillion budget, after an upward review of the proposed budget spend of N27.5 trillion.
The 2024 Debt Servicing Cost too, at 28.7% of the total budget, is the second highest in proportion in the last 4 years. This further presents risks of the impact of high debt servicing costs on the country’s long-term financial viability.
Yet, the concerns that the country’s accumulated debts impose on its 2024 fiscal outlook is counterbalanced by Tinubu’s government’s signalling of a lower (new) debt risk and a lower debt financing.
Higher CAPEX
Capital expenditure had the highest allocation in the 2024 budget, with a total of N9.995 trillion.
Besides, as a percentage of the entire budget, capital expenditures accounted for the largest component of Nigeria’s spending in 2024, compared to the three previous years, when recurrent expenses constituted the bulk of the budget.
Next to the Capital Expenditure is Recurrent Expenditure.
Recurrent expenditure items account for the second largest most financed item at 30.47% of the 2024 budget. This is less than the average 38% recurrent expenditures in the last 4 years under review (2021-2024).
The recurrent budget component includes salaries, pensions, fuel for vehicles, and procurement of consumables.
Over the previous four years, debt servicing and sinking fund percentages averaged 26%. The highest percentage budgeted for debt servicing and sinking funds, at 32% of the overall budget, was recorded in 2023, while the Renewed Hope budget had the second-highest percentage in the reviewed years, accounting for 28.7% of the total budget.
Capital expenditure, an essential element in promoting economic development, includes investments in material assets like machinery, infrastructure, and technology.