In 2025 Economic Outlook, Audit Firm Raises Concerns over FG’s Deficit Financing Strategy

Emmanuel Addeh in Abuja

Kreston Pedabo, a Nigerian audit, assurance, tax compliance and advisory firm, has raised concerns over the sustainability of the federal government’s deficit financing strategy in its newly released 2025 economic outlook.

Although it projected a modest growth for Nigeria in 2025, however it warned of significant structural and financial challenges that could hinder economic stability.

Kreston Pedabo, which also carries out financial advisory and risk management, as well as management consulting, in the document, argued that relying on debt, asset sales, and multilateral loans—raises concerns about the sustainability of the country’s growing debt burden.

The report was co-authored by the firm’s Senior Associate for Financial Advisory & Risk Management, Oreofe Olamoyegun; Lead for Management Consulting, Tyna Adediran; Partner for Financial Advisory & Risk Management, Nosa Ogbebor; and Senior Partner for Tax Compliance & Advisory, Killian Khanoba.

It also highlighted key risks to the Nigerian economy such as rising inflation, a depreciating naira, and a mounting debt burden, pointing to an 8 per cent country default spread, a signal of elevated investor caution regarding Nigeria’s creditworthiness.

Debt default spread is a risk premium that measures the likelihood of a borrower defaulting on a loan or bond.

Rising public debt and the high cost of servicing these obligations, it maintained, could further restrict the government’s ability to invest in critical infrastructure and social services.

Besides, it said that persistent insecurity, infrastructure deficits, and corruption remain significant barriers to economic reforms and growth initiatives, even as inflationary pressures continue to erode purchasing power, increase operational costs, and dampen consumer demand, particularly in the financial services sector.

“The depreciation of the naira is another major concern, as it discourages investment, exacerbates foreign exchange shortages, and disrupts trade,” it pointed out.

It added that the oil sector, a key driver of Nigeria’s economy, faces continued risks from oil theft, pipeline vandalism, and global price fluctuations, which threaten revenue recovery, but highlighted the government’s renewed focus on security in oil-producing regions and ongoing reforms in the petroleum sector.

Noting that curbing insecurity could help stabilise production and improve revenue generation, it said that the non-oil sector, high production costs, limited access to credit, and inflationary pressures could stifle growth in agriculture, manufacturing, and services.

The report emphasised the need for policies that incentivise local manufacturing, modernise agricultural practices, and enhance digital infrastructure to support sustainable growth in these sectors.

Also, the capital market is expected to see moderate growth in 2025, driven by increased investor confidence following ongoing reforms and the issuance of local bonds to finance infrastructure projects.

However, rising domestic borrowing costs and foreign portfolio outflows remain key risks, it stressed, underscoring the need for strategic policies that enhance market liquidity and attract foreign direct investment to sustain market performance.

To mitigate these risks, the Pedabo report called for targeted policy measures to strengthen economic resilience and drive inclusive growth. It advocates for greater Public-private Partnerships (PPPs) in infrastructure development, supported by a transparent regulatory framework and government guarantees.

Furthermore, it stressed the importance of export diversification, recommending strengthened international trade agreements, targeted export promotion strategies, and incentives for import substitution to improve Nigeria’s trade balance and foreign exchange earnings.

It highlighted the need for investments in renewable energy, refinery and pipeline upgrades, and expanded transport networks to reduce production and distribution costs in the energy sector.

It further recommended a renewed focus on industrialisation through subsidy programmes, tax incentives, and the development of Special Economic Zones (SEZs), explaining that these measures could shield vulnerable populations from inflation while boosting domestic industries and reducing dependency on imports.

Keston Pedabo identified technology and innovation  as critical growth areas, calling for increased support for tech startups, broadband infrastructure investment, and digital literacy programmes to drive Nigeria’s digital economy and improve internet accessibility.

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