A NEW report by the International Monetary Fund (IMF) has exposed what it described as significant and persistent errors in Nigeria’s fiscal forecasting, with budget projections for revenues, expenditures, and deficits consistently overestimating actual outcomes.
The report, titled “Fiscal Forecasting Errors in Nigeria (2025)”, highlights systemic optimism in revenue projections — particularly from oil — and under-execution of capital expenditures, raising concerns about the credibility of the budget as a tool for economic planning.
The report, covering 2011–2023, reveals that Nigeria’s revenue forecasts exceeded actual collections by an average of 1.8% of GDP (36% of revenues), driven largely by unrealistic oil production targets.
It noted that despite conservative oil price assumptions, actual production fell short of budgeted levels in 11 of 13 years, attributed to pipeline vandalism, theft, and operational inefficiencies.
It also observed that unbudgeted fuel subsidies further eroded oil revenues, with deductions from the Nigerian National Petroleum Company (NNPC) exacerbating gaps.
Non-oil revenue forecasts also showed optimism bias, especially for customs duties, while value-added tax (VAT) and corporate income tax (CIT) projections improved post-2020.
According to the report, weak tax compliance and administrative bottlenecks persisted, with budget reports citing “leakages” and delays in policy implementation as key hurdles.
On the expenditure side, capital spending execution lagged behind budgets by 70% on average, reflecting capacity constraints and poor project management. Despite mechanisms like multi-year budget carryovers, ministries struggled to complete projects, leading to abandoned infrastructure initiatives.
Recurrent expenditures — particularly personnel and overhead costs — were better controlled, though this came at the cost of underfunding critical operational needs.
While fiscal deficit errors narrowed recently, the IMF warns that this masks deeper issues: revenue shortfalls were offset by ad hoc expenditure cuts, straining public service delivery. The report also links persistent forecast errors to increased reliance on central bank financing (Ways and Means), which peaked during high-error periods (2017–2021), raising debt sustainability concerns.
IMF Recommendations
The IMF urges Nigeria to adopt global best practices to improve forecasting accuracy, including strengthening Macro-Fiscal Units to elevate the role of forecasting departments and ensure cross-agency data sharing.
The Fund also recommended regular audits of forecast performance, akin to Kenya’s public budget annexes, to enhance accountability, and show commitment to shield forecasters from undue pressure and align budgets with realistic revenue assumptions.
It also urged Nigeria to addressing oil sector leakages by tackling theft and subsidy inefficiencies to stabilize revenue streams.
