2026: Are we prepared for the hard choices ahead?

The year 2026, which is just around the corner, is sure to come with some hard choices, but how prepared are we for the challenges ahead? The twists in the government’s fiscal narratives in 2025 have inevitably predisposed everyone, including the government, to hard choices come 2026. After officials drove the government off-road on the policy journey, there is little space for maneuvering besides what President Bola Tinubu outlined in the budget presentation last Friday.

From the federal government and its budget with a debt service cost of N15.52 trillion and a deficit of N23.85 trillion, to Nigerians who face a new tax system, there will be hard choices, and many economic agents will face stiff constraints as they make decisions.

Take the government, for instance. This level of debt service means that a significant portion of the revenue to be generated will be used to service debts. Given the fact that terms of loans are usually fixed, it is safe to conclude that the budgeted amount for debt servicing will most likely go into that purpose. That signals a significant pressure on the public purse next year.

That pressure widens when you factor in the deficit of N23.85 trillion. If we remove this item from the budget, the entire plan virtually collapses because the expected revenue is just 34.33 trillion naira. This gives a deficit-to-revenue ratio of 69.45 per cent. It is comforting – and convenient- for the government these days to express a deficit in relation to the GDP. So, President Tinubu did this and got a value of deficit-to-GDP ratio of 4.28 per cent. This does not pose much of a challenge. However, we all know that the GDP does not repay debts, which is what the deficit will ultimately become. Nations and individuals repay their debts from current or future debts, so this presents a better measure of what we are up against in terms of future cash flows and obligations.

Adding the debt service amount to this raises this ratio to 114.7 per cent. In other words, our projected revenue cannot meet the deficit and the debt service. This scenario raises some critical questions about the government’s fiscal challenges in the new year. Where will funding for the deficit come from in the new year? Conventionally, there are two options for the funding of deficits: the first being debts. That means that while we shall be spending this huge amount to service existing debts, the country may also embark on another borrowing spree to meet the funding gap already established.

The other option, which is now not likely to be considered by the government, is to resort to the popular Ways and Means trajectory. This literally means increasing the money supply or printing more money without the corresponding increase in economic activity or value. Nigerians will not forget in a hurry the damage done to the economy during the dispensation of the previous administration, and also the leadership of the central bank.

The government will avoid this option, especially for its potential impact on macroeconomic stability. A resort to approach is certain to cancel the visible results that have been achieved in stabilising the economy. With the November inflation rate standing at 14.45 per cent, the government would be reluctant to pursue policies that have the potential to reverse such a gain. This again leaves debts as the most likely option for funding the wide deficit gap in the budget.

There is no doubt that the government will increase its revenue performance next year, at least because of the fiscal debacle we have experienced in 2025.  The government projected a collectable revenue of N40.8 trillion but ended up collecting just N10.7 trillion. This is enough to push the government to act to improve its performance. Given the discrepancies that have arisen in the reporting of the government’s fiscal activities, it is safe to assume that the machinery of government would be deployed to ensure that this is at least minimised.

Accordingly, the President announced marching orders to heads of government-owned enterprises, who must meet their revenue targets in the new year. This expected improved revenue performance will be achieved via the new National Tax Acts and the ongoing reforms in the oil and gas sector, according to the President.

Nigerians will learn- many perhaps for the first time, to prepare to pay taxes. That will leave disposable incomes lower than they have been for such people. Tax as an expense item will now enter people’s financial and expenditure calculations, and for them, it will be a hard but inescapable choice.

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