FG may need supplementary budget to pay minimum wage – IMF

The Federal Government of Nigeria may have to consider raising a supplementary budget to accommodate the proposed increase in the minimum wage for workers. The International Monetary Fund (IMF) made this recommendation in its latest staff country report for Nigeria, stating that the negotiated amount may exceed the budgeted amount in the original 2024 budget.

According to the report, the government may also need to raise the domestic and external borrowing ceilings to prevent additional borrowings from the Central Bank of Nigeria’s Ways and Means facility. The new minimum wage has been a subject of ongoing negotiations between Organised Labour and the government as a measure to alleviate the effects of the challenging economic conditions.

Recent economic reforms in Nigeria, such as the removal of fuel subsidy and the unification of the foreign exchange market, have resulted in increased living costs. While labour leaders are demanding an increase from N30,000 to N615,000 as the minimum wage for the lowest-ranked workers, indications suggest that the tripartite committee may recommend N70,000 as the new minimum wage.

However, the allocated amount of N6.48 trillion for personnel costs in the 2024 budget may be insufficient, according to the IMF. The report also highlighted that the country’s budget deficit for 2024 is expected to exceed projections due to implicit subsidies for fuel and electricity, as well as rising interest expenses on debt.

Finance Minister Wale Edun has expressed the government’s plan to reduce the budget deficit from 6.1% in the  budget to 3.8% in the current appropriation. However, the IMF report projects a higher fiscal deficit than anticipated in the 2024 budget, mainly due to lower oil and gas revenue projections, higher implicit fuel and electricity subsidies, suspension of excise measures, and increased interest costs.

The report suggests that the government should consider meeting its financing needs from the market and external borrowing. It also emphasizes the importance of careful management of system liquidity and the reduction of the currently high cash reserve requirement to ensure sufficient appetite from banks and nonbanks for financing.

In terms of external financing, the IMF supports an opportunistic issuance of Eurobonds given upcoming maturities in 2025. It also factors in official financing as part of the projected financing mix for 2024.

As the government considers its options to address the financing needs and budget deficits, it will be crucial to strike a balance between meeting the demands of workers and ensuring sustainable fiscal management. The decision to raise a supplementary budget and adjust borrowing ceilings will require careful consideration and coordination to avoid adverse effects on the economy and private sector credit.

Overall, the IMF report highlights the challenges faced by the Nigerian government in managing the budget deficit and financing needs, particularly in the context of the proposed increase in the minimum wage. It underscores the importance of fiscal prudence and effective economic management to ensure sustainable growth and development for the country.