The Lagos Chamber of Commerce and Industry (LCCI) says the N1,400 foreign exchange rate (FX) projection in the proposed 2025 budget is unrealistic.
On Tuesday, the federal government proposed N47.9 trillion as the total expenditure for the 2025 budget.
The budget parameters include a crude oil price benchmark of $75 per barrel and an oil production target of 2.06 million barrels per day (bpd).
The federal government also projected the exchange rate to drop to N1,400 per dollar and a gross domestic product (GDP) growth rate of 4.6 percent.
In a statement on Monday, Chinyere Almona, the LCCI director-general, advised the government to reassess the assumptions for the 2025 budget due to the challenges posed by high inflation and the exchange rate.
Almona said inflation, which rose to 33.88 percent as of October 2024, makes it unrealistic to expect a steep 51 percent drop within a year.
“The approved 2025 – 2027 MTEF proposed that the federal government will spend N47.9 trillion to run the economy in 2025. This represents an increase of 36.64% in government expenditure compared to N35.06 trillion in 2024,” the statement reads.
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“In nominal terms, the budget is the highest in the history of the country in Naira denomination. The proposed 2025 budget aggregates are inherently sensitive to current macroeconomic conditions, as they directly impact revenue generation, expenditure, and overall fiscal performance.
“A review of the key parameters and assumptions on which the 2025 budget is being proposed appears to be too optimistic in the face of current realities as recorded in the economic and social indicators.
“Particularly, the assumption of an exchange rate at N1,400 is too fragile to work with against the current average of above N1,600 to a Dollar in both the official and parallel markets.
“Assuming an inflation rate at 15.8 percent does not reflect the unabating factors pushing up both the headline and food inflation. With inflation rising to 33.88 percent as of October 2024, it is unrealistic to assume a steep 51 percent crash within a year.
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“Since the current challenging economic conditions are mostly fueled by the inflation rate and the exchange rate, we advise the government to reconsider the apparently over-ambitious assumptions for the 2025 federal budget.”
Almona said beyond the assumptions and projections, the creation of an enabling environment for the private sector to thrive, and the clarity of policy direction in the economy are critical to achieving the projected growth rate of Nigeria’s gross domestic product (GDP) in 2025.
“Further breakdown indicates that debt services are proposed to increase by 91.2% to N15.38 trillion, which is equivalent to 32.1% of the total budget. This appears to be unsustainable,” the LCCI president said.
“The situation is further worsened with the projected deficit at N13.08 trillion and new borrowings of N9.22 trillion.”
Almona advised the federal government to maintain fiscal discipline by adhering to the fiscal responsibility Act in budget management and borrowing.
“With federal government debt already at about N134 trillion as of June 2024, inflation reaching a new high of 33.88 percent as of October, and businesses burdened with a high Monetary Policy Rate at 27.25 percent, the Federal Government has a narrow bridge to navigate choices of policy options,” she said.
“We urge the Central Bank of Nigeria to sustain its Ways and Means Advances to the Federal Government at a five percent limit for the fiscal years 2024-2025.
“Non-oil revenues, such as taxes, customs duties, and surpluses from government agencies, are all subject to volatility in the economy.
“Current economic downturns, tense business environment, ongoing debates on tax policies, and shifts in consumer behaviour can impact non-oil revenue performance.
“In the face of current realities, we urge the government at all levels to be more proactive in respect of nature-induced casualties, climate change impacts, and damages caused by human activities.
“In recent months we have recorded massive destruction of lives and properties due to climate-related factors. We therefore expect the legislative arms at all levels of government to appropriate more funds to tackle climate change adaptation and mitigation nationwide.
“We need to focus on sectors that have shown resilience and relevance and are key drivers of current economic indicators like inflation, exchange rate, unemployment, and interest rates.”
The LCCI DG also recommended increased investment in food production, including crops, livestock, fisheries, and poultry; improving power supply, addressing insecurity, and ensuring a stable policy and regulatory environment.
Almona emphasised the need for coordinated monetary and fiscal policies in critical areas, reducing youth unemployment through skills acquisition, and empowering small and medium-sized enterprises.
