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IMF recommends supplementary budget to meet minimum wage increase

International Monetary Fund Highlights Potential Budget Deficit Amidst Wage Negotiations and Rising Fiscal Pressures in Nigeria.

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The Federal Government of Nigeria faces mounting fiscal challenges as negotiations for a minimum wage increase for workers threaten to surpass budgeted amounts, potentially necessitating a supplementary budget, according to recommendations outlined in the latest staff country report from the International Monetary Fund (IMF).

The IMF report underscores concerns raised by Nigerian authorities regarding the possibility of exceeding budgetary allocations amid ongoing wage structure negotiations. Notably, the report highlights the potential need for supplementary budgetary provisions to accommodate outcomes from the wage negotiations, which could exceed initial budget projections for the year 2024.

Moreover, the IMF report warns of the necessity for the Nigerian government to revise domestic and external borrowing ceilings to mitigate the risk of resorting to fresh borrowings from the central bank’s Ways and Means facility. This caution comes amidst escalating fiscal pressures stemming from recent economic reforms and rising costs of living in Nigeria.

The ongoing negotiations for a new minimum wage, initiated earlier this year to mitigate the adverse effects of economic challenges, have intensified as labour leaders advocate for substantial wage increases. Despite demands for a significant raise, projections suggest that the tripartite committee may recommend a minimum wage lower than the proposed N615,000, potentially exacerbating fiscal strain.

With the 2024 budget earmarking N6.48tn for personnel costs, the IMF contends that this allocation may fall short in accommodating the proposed wage increases, necessitating strategic fiscal adjustments to address emerging deficits and maintain fiscal sustainability. The report further underscores the imperative for Nigeria to bolster revenue mobilization efforts and explore alternative financing mechanisms to meet its fiscal obligations responsibly.

Additionally, the IMF recommends that the Nigerian government consider diversifying its financing sources, emphasizing the importance of market-based and external borrowing to meet fiscal needs while mitigating the risk of excessive reliance on central bank financing. This strategic approach aims to ensure fiscal stability, facilitate economic recovery, and address pressing social needs amidst prevailing economic uncertainties.

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