Nigeria is confronting a looming fiscal crunch as analysts warn of deeper economic implications as governments at all levels move to implement a recently approved minimum wage hike.
The decision, aimed at alleviating the financial hardships faced by workers amid soaring inflation, has significantly increased personnel and pension costs, adding pressure to an already strained fiscal environment.
The federal government announced an increase in the national minimum wage from N30,000 to N70,000 per month, effective January 2024, while the states have announced their minimum wage ranging from between 70,000 and N80,000.
While the adjustment is widely seen as a necessary response to rising living costs, experts argue that the associated costs could destabilise Nigeria’s fiscal framework unless accompanied by comprehensive reforms.
According to the Ministry of Finance, personnel expenses, which include salaries, wages, and allowances, had risen by over 25 per cent in the past year. The new wage increase is projected to push these costs even higher, with pensions and gratuities following suit due to the direct correlation with salary structures.
…It’ll exacerbate fiscal vulnerabilities – Muda Yusuf
In his view, an economist and CEO of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, noted that “while the wage increase is socially and politically imperative, it could exacerbate fiscal vulnerabilities if not matched by corresponding revenue growth. Nigeria’s budget deficit is already substantial, and higher recurrent expenditure without structural reforms could lead to unsustainable debt levels.”
Nigeria’s 2024 budget proposal indicates a projected deficit of N11 trillion, nearly 5 percent of the GDP, well above the Fiscal Responsibility Act’s 3 percent limit.
Analysts warn that escalating personnel and pension costs could widen this gap, forcing the government to borrow more. The country’s public debt stock currently stands at N87 trillion, raising concerns about its ability to manage repayment obligations.
“The government must prioritise fiscal discipline,” said Taiwo Oyedele, Fiscal Policy Partner at PwC Nigeria.
“Revenue mobilization through efficient tax collection, diversification, and curbing wasteful spending will be critical to mitigating the fiscal risks associated with the wage increase,” Oyedele added.
Experts are urging the government to implement fiscal reforms to offset the rising costs. Recommendations include reducing overhead expenses, broadening the tax base, and eliminating subsidies that drain public funds. Analysts also suggest revisiting public sector employment policies to ensure optimal productivity and efficiency.
“The situation underscores the urgency of structural reforms. A sustainable fiscal strategy will involve tackling leakages, enhancing transparency in government spending, and addressing the inefficiencies in public service delivery,” said Oyedele.
‘…Wage increase imperative’
Despite the fiscal challenges, many agree that the wage increase is vital for cushioning workers against the economic hardships caused by high inflation, which reached 25.8 per cent in October 2024. However, balancing this social imperative with fiscal sustainability remains a critical challenge for the government.
Failure to address the underlying fiscal imbalances could lead to severe consequences, including inflationary pressures, reduced investor confidence, and potential economic stagnation.
As Nigeria navigates this complex fiscal landscape, the focus will likely remain on how swiftly and effectively the government implements policy measures to mitigate these risks while meeting its obligations to workers.
…Need for cut-down on cost of governance
In his intervention, a financial analyst, Matthew Dadiya, noted that while the minimum wage payment is overdue, the government should find a way to address its impact on the economy.
In a telephone interview with Blueprint, Dadiya said the government should be able to manage its resources in a way that it can be able to pay the new minimum wage.
According to him, workers are anxiously waiting for the implementation of the new wage.
“The government needs to find a way to implement this minimum wage as quickly as possible. And it should be able to find a way to bring down the prices of goods and services. People are struggling to survive. It is not easy for anyone, even the workers.
“I don’t wish for Nigeria to go back to borrowing to pay workers’ salaries. The government has money and its only able management. If the government is prudent, then they would be able to manage the resources that we have. They would manage it to pay salaries.
“If they say they don’t have money, they should reduce the salary of National Assembly workers, they should slash the salary of the judges, and they should slash the salary of the ministers and top government officials. They are earning so much money, if they can cut down on their salaries and reduce other costs; they will have enough to pay workers’ salaries without borrowing,” he said.
Fiscal imbalance expected – Expert
On his part, an economist, Adefolarin Olamilekan, said the impact of the new national minimum wage in the fiscal balance of the government is expected, both at the national and sub-national levels.
He told this newspaper that it could also act as a catalyst that would stimulate the economy both on the relative spending power of the government and respective workers of public institutions and agencies.
According to him, the only fear would be when the government is not able to improve on its tax revenue collection as it may encounter this fiscal risk.
“More so, so many analysts are predicting this on the fact that many of the sub-national governments are poor in IGR, innovation enterprises, lacking constant royalties or return on investment as well as the problem of misappropriation, corruption and sleaze over public funds.
“Overly in our estimation, the new national minimum wage p be viewed from the prism of positive and negative.
“Positively, it is going to stimulate the economy with injection of funds for recurrent expenditure to pay salaries and eventually improve worker spending and purchasing power.
“Negative in the sense that sub-national that cannot ramp up their revenue sources would suffer fiscal imbalance.
“Yet still, we cannot overemphasize the fact that tax, especially personal income tax is also going to increase as well pension contribution of workers,” he explained.