In every Nigerian budget, one of the key projections everyone looks out for is the exchange rate projections on which the budget is based. This is because Nigeria being a largely import-dependent economy relies so much on the dollar for most of its international trade, the country also relies mostly on its income from international crude oil trade to fund its budget
Much of this trade is done in dollars, the rate at which the dollar is exchanged for the dollar yearly therefore has a significant role to play in the level of budget performance witnessed yearly.
2025 Projection
In the recent 2025 budget, the federal government adjusted the dollar benchmark from N1,700 to N1,500. However, one would only need to look back at dollar projections in recent years to realize lowering the Naira – Dollar exchange rate benchmark is easier said than done as projections for the dollar provided in Nigeria’s budget are not always accurate.
In certain years the naira overperforms and stands strong against the dollar while more often than not in recent times, the naira’s value ends up becoming massively undervalued against the dollar making a mockery of budgetary projections.
A reflection on the exchange rate used to base the national budget over the years reveals a mixed bag.
2020 Budget
The 2020 budget was based on an exchange rate of ₦305 per US dollar. Inflation in the country was also put at 13.25%. However, as of the end of December 2020, the naira was traded at N470/$1.
This figure was close to N200 above the exchange rate used to base the budget, as a result, budget performance was affected. The devaluation of the naira meant the country had to pay more for refined crude and servicing of debts especially foreign ones domiciled in Dollars gulped a significant part of the country’s revenue.
2021 Budget
In the 2021 budget, the government adjusted the projected exchange rate to ₦379 per US dollar, reflecting economic challenges and currency pressures.
However, at the end of December 2021, the dollar was traded at the rate of N560, this massive difference in the dollar benchmark and the actual exchange rate greatly affected the performance of the 2021 budget.
2022 Budget
In the 2022 budget, it was projected that the dollar rate would be ₦410.15 per US dollar to reflect an ongoing currency depreciation. However, the dollar rate for most of the year was higher as it traded at N448/1$ at the end of 2022.
This disparity meant a huge debt servicing problems and with the addition of falling oil revenues, the budget could not be seen to the latter.
2023 Budget
In 2023, the Dollar was projected at an exchange rate of ₦435.57. However, as at December 2023, the Naira traded at an average of N850-900/$1 following the float of the Naira by the Federal Government.
This actual rate made misery of the exchange rate projections contained in the budget, and made it difficult to finance the budget. Debt servicing, oil import and a host of other dollar denominated debts.
2024 Budget
The 2024 budget was based on an exchange rate of ₦800 per US dollar. However, as a result of massive devaluation of the naira, it currently trades at approximately $1,700/$.
Due to this devaluation of the naira also, the performance of the 2024 budget has not been great and the need to finance deficits in the budget recently led to an approval of a loan of $2.2Billion to finance the budget a few weeks ago.
Implications of the Annual Budgetary Projections of the (Naira-Dollar) Exchange Rate
Basing the 2025 budget on a benchmark of N1500/1$ seems optimistic at best, but as it has played out in years past setting an exchange rate benchmark for a budget and hitting it takes more than wishful thinking.
The president is right to maintain optimism that the exchange rate would hover around the projected range but it is going to take a major miracle and sound economic policies for that to materialize.
One way to strengthen the naira would be to export more than Nigeria imports, and this can only be achieved through strengthening sectors like the agricultural and mining sectors which have the tendency to bring in more foreign exchange for the country.
With the coming of Donald Trump, Oil prices might fall especially with his plans of making America a major oil producer, this can affect Nigeria’s income massively.
The president also hoped to reduce inflation from 37% to 15R%, while that is a noble aim, it is easier said than done. It is therefore left to be seen how president Tinubu intends to achieve these lofty goals.
