A paradox that increasingly characterizes Nigeria’s fiscal tale is the country’s record-breaking local currency receipts combined with declining foreign earnings as a result of exchange rate depreciation.
The Budget Office of the Federation and the Office of the Accountant-General collaborated to create the newly released Q3 2024 budget implementation report, which highlights this paradox and provides insight into the potential developments for Africa’s largest economy in 2025.
In contrast to N12.8 trillion in the same time of 2023, gross federally collected revenue for the first nine months of 2024 increased by 78% year over year to N22.9 trillion, the research states. The government’s pro-rata budget target of N23.1 trillion was nearly met by this performance.
The situation, however, is very different when expressed in monetary terms. The revenue was only $15.5 billion, a 22% decrease from $19.9 billion in 9M 2023. It is obvious who is to blame: the sharp devaluation of the naira after the exchange rate adjustments in 2023, which caused the official rate to rise from about N645/$ to N1,479/$ in 2024.
As Nigeria approaches the latter quarter of 2024 and looks to 2025, the country’s budgetary situation shows both optimistic advancements and enduring weaknesses.
Oil revenues bounce back, but the goal was not met.
Although oil earnings, which have historically been the foundation of Nigeria’s national finances, increased in 2024, they still did not meet expectations.
Oil collections increased by 102% year over year to N11.2 trillion, or 48.8% of overall revenues, according to the budget report.
Nigeria only produced 1.55 million barrels per day (mb/d) on average during the reporting period, which was less than its OPEC allotment and the government’s goals, even with increased oil prices and better pipeline surveillance.
Crude output is projected to reach 1.70 mb/d in the fiscal framework for 2025, a rise authorities maintain is possible with continued upstream investments and increased Niger Delta security. Oil receipts might be much increased next year if the higher production level is realized, especially if Brent prices stay over $80 per barrel.
Analysts are less hopeful, though.
According to Cowry Asset Management CEO Johnson Chukwu, “the recovery in oil collections is encouraging.” However, it is obvious that oil cannot be the only factor contributing to Nigeria’s budgetary stability, especially in 2025 and beyond. The worldwide transition to cleaner energy, aging infrastructure, and underinvestment all have a significant impact on the outlook.
Non-oil incomes provide the impetus.
If oil revenue was disappointing, the Q3 2024 report’s non-oil receipts were the true highlight. At N11.7 trillion, non-oil income not only surpassed oil’s share but also went 44% beyond budgetary projections.
VAT: Revenues from value-added tax increased 96% year over year to N4.8 trillion, easily above the N3.0 trillion goal. Increased computerized VAT tracking and more stringent enforcement actions were the main drivers of the increase.
Corporate Tax: Thanks to robust corporate profits in banking, telecoms, and manufacturing, company income tax receipts increased 29% to N4.3 trillion.
Customs Duties: Led by higher import values due to a lower naira, collections increased 82% to N2.2 trillion, which was largely in line with predictions.
Other Levies: While they went up 44% to N401 billion, electronic money transfer levies and other special taxes did not reach the N546 billion budgeted amount.
These findings demonstrate the effects of continuous fiscal reforms, including enhanced compliance monitoring, expanded taxation, and digitalization of collection systems.
The trend seems to be carrying over into 2025. Non-oil receipts increased 41% year over year to N20.6 trillion in the first eight months of 2025, according to preliminary estimates, highlighting a structural change that may eventually lessen Nigeria’s reliance on oil.
The tax system is at last keeping pace with the size of the economy, according to public finance specialist Ngozi Okon. “The push for digitalization has decreased leaks, significantly improved VAT compliance, and brought more businesses into the system.” Nigeria’s fiscal system has quietly succeeded because to these measures.
Governments share more revenue.
When statutory deductions are taken into account, net distributable revenue to the three levels of government increased to N20.4 trillion in 9M 2024, which is more than twice as much as the N9.1 trillion distributed during 1923.
Since many state governments rely largely on federal funding to support infrastructure, healthcare, and education, this windfall has given them much-needed fiscal freedom. The difference between budgetary survival and collapse for several states has been the increase in monthly allocations.
In practice, though, the advantage is less pronounced. Purchasing power was weakened by headline inflation, which averaged over 27% in 2024. Imports, especially essential materials for public works and construction, became more expensive due to the depreciating value of the naira.
The head of the Centre for the Promotion of Private Enterprise, Muda Yusuf, stated that although states appear to be receiving more money, they are actually paying a lot more for everything. “Service delivery improvements are not keeping pace with the revenue increase.”
FX devaluation: The impact on financial gains
Nigeria’s fiscal trajectory is limited by currency weakness, as the Q3 report makes evident. The government’s external purchasing power is being diminished, and servicing its foreign debt is becoming more difficult, as naira-denominated receipts continue to rise but their dollar equivalents decline.
The foreign currency used to pay off Nigeria’s external debt is mostly US dollars. In 9M 2024, the strain is emphasized by the drop from $19.9 billion in 2023 to $15.5 billion.
Speaking on the condition of anonymity, a senior finance ministry official recognized the strain, saying: “We are collecting more naira than ever before, but when we convert to dollars, our position is weaker.” This contradiction has an impact on investor perception and the sustainability of debt.
In 2025, it is anticipated that the Central Bank of Nigeria (CBN), led by Governor Olayemi Cardoso, will carry out more foreign exchange reforms with the goal of increasing market liquidity and drawing in international investment. Despite a gradual increase in reserves due to portfolio inflows, the naira is nevertheless under pressure from structural trade imbalances and high import demand.
Chukwu cautioned that Nigeria’s fiscal revenue would continue to be weakened in terms of dollars until the naira stabilized or strengthened. “Growing Naira collections is insufficient; FX stability is necessary for external credibility.”
Experts assess the chances for 2025.
The general consensus among economists is that three crucial elements will determine Nigeria’s fiscal performance trajectory in 2025:
Oil production
According to Okon, “we will probably see oil revenues surpass 2024 levels in both naira and dollar terms if Nigeria can achieve 1.7 mb/d in 2025.” However, there are still production hazards, like as pipeline vandalism and inadequate upstream facility investment.
Reform of non-oil taxes
It seems that the reforms supporting non-oil growth are strong. The VAT base is anticipated to grow even more as cashless transactions and digital payments continue to gain traction. Strong corporate tax collections are also anticipated, especially from telecoms and financial services.
The stability of FX
The most important factor, perhaps. In 2025, a more stable naira would boost revenue in terms of dollars, reduce the cost of debt servicing, and regain investor trust. However, if currency depreciation continues, the “more naira, fewer dollars” contradiction will continue to exist.
“Higher naira revenues will continue to conceal weaker real gains in the absence of FX stability,” Chukwu emphasized.
The two-edged inflationary sword
Inflation is another issue; in 2024, it averaged more than 27%. Nominal revenues are increased by high inflation because import, service, and goods taxes increase in tandem with prices. However, it also raises the cost of administration, reduces household incomes, and diminishes the true value of those revenues.
This means that for states and local governments, increased monthly allotments hardly meet the growing expenses of social spending, infrastructure projects, and salaries. “It’s a treadmill effect,” Yusuf declared. “Costs increase in tandem with revenue growth.”
Moving toward financial stability?
Nigeria’s fiscal authorities are at a turning point in their history. On the one hand, revenue mobilization has significantly improved, especially in the non-oil sector. Conversely, the economy becomes more susceptible to debt and trade shocks as the naira depreciates, undermining external strength.
The government’s fiscal plan for 2025 must carefully balance these factors:
consolidating non-oil revenue advantages by implementing compliance and further digitalization efforts.
Addressing enduring obstacles in the oil industry, such as crude theft and underinvestment.
rebuilding foreign reserves and stabilizing the naira in coordination with the CBN.
If these goals coincide, Nigeria may move into a new stage of fiscal stability, becoming less reliant on oil and more resilient to shocks from around the world. The dichotomy of “more naira, less dollar” will continue, however, limiting the actual benefits of growing income, if oil underperforms and the naira stays weak.
Conclusion: A conundrum that characterizes 2025
Amidst fragility, the Q3 2024 budget implementation report presents a picture of progress. Nominal revenues are rising quickly, states are pooling more resources, and non-oil reforms are paying well.
Nigeria’s external position is weaker, not stronger, as a result of the naira’s depreciation. Less money is made for each naira that is obtained. The fiscal discussion in 2025 will be shaped by this paradox as decision-makers face the harsh fact that growing nominal revenues do not always equate to fiscal strength.
According to an expert based in Lagos, “Nigeria is making more money than ever before, but the world sees less value.” The fiscal story will be defined by this conundrum until the naira stabilizes.
