The Nigerian government may need to raise an additional budget to cover the proposed increase in the minimum wage for workers, as noted by the International Monetary Fund (IMF).
This revelation coincides with ongoing talks between the government and Organized Labor, with the negotiated sum possibly exceeding the amount allocated in the initial 2024 budget.
The 2024 Article IV Consultation report contained the IMF’s remarks, indicating the necessity of making fiscal changes to conform to the changing economic environment. The government’s attempts to address the difficulties brought on by the difficult economic circumstances that Nigerian workers must contend with are reflected in the current negotiations over the new minimum wage.
Recent changes have aided in the following: the elimination of fuel subsidies and the unification of the foreign exchange market.
Reacting to this, IMF said “The authorities noted that a supplementary budget may be needed to accommodate the outcome of the ongoing wage structure negotiations which may exceed what they had included in the 2024 budget,” the report stated.
In the 2024 budget, the government allocated N6.48tn for personnel costs but the international lender posits that the amount may be insufficient.
It also noted that the government might need to raise the domestic and external borrowing ceilings to prevent fresh borrowings from the Central Bank Of Nigeria’s Ways and Means.
It said, “Based on staff’s projections, the authorities must raise the domestic and external borrowing ceilings to prevent renewed recourse to CBN financing. With higher interest rates, banks and nonbanks should have sufficient appetite—as indicated by market sources—conditional on careful management of system liquidity, including a likely reduction in the currently high cash reserve requirement.
“Staff projects that the government’s 2024 net financing needs can be met from the market and external borrowing. Domestic market financing needs to increase by 1.5 per cent of GDP over 2023. In addition, the government wants to retire outstanding ways and means borrowing from the CBN of 2.5 per cent of GDP through the issuance of further domestic securities.”
It added, “While staff agrees that ways and means financing should be brought to zero by end-2024 in line with the law, the authorities may need to consider other options to avoid crowding out private sector credit, including drawing down the government’s deposits at the CBN built up in 2023 or a second securitisation operation to tackle this legacy problem.”
“While external financing is costlier than when Nigeria last accessed Eurobond markets, staff supports an opportunistic issuance, also given upcoming maturities in 2025. A Eurobond issuance and some official financing are factored into staff’s projections as an integral part of the 2024 financing mix.”