Nigeria faces fiscal challenges as minimum wage hike pushes up personnel, pension costs
The Federal Government is bracing for a significant financial strain as personnel and pension costs are projected to surge by 58.7 per cent in 2025 due to the implementation of a new minimum wage policy.
Only last week, in a protest at the ministry of finance, Nigeria’s pensioners union called for consequential adjustment to pension payment by the federal government.
This projection, outlined in the 2025-2027 Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP), signals a rise from N6.07 trillion in 2024 to N9.64 trillion in 2025.
The increase is attributed to salary adjustments and consequential pension contributions mandated by the wage policy.
In further detail, the personnel expenses for Ministries, Departments, and Agencies (MDAs) are anticipated to rise from N4.79 trillion in 2024 to N7.17 trillion in 2025, marking a 49.7 percent increase.
Meanwhile, Government-Owned Enterprises (GOEs) will see their personnel costs jump from N608 billion to N1.02 trillion, a steep 67.2 per cent hike. Combined, these expenses are projected to climb from N5.4 trillion in 2024 to N8.19 trillion in 2025, emphasizing the significant budgetary pressure.
Economic analysts are raising red flags over the implications of this rise. Dr. Kemi Adesanya, a financial policy analyst, warned, “This level of expenditure increase, particularly in personnel and pension obligations, is unsustainable given Nigeria’s current revenue profile. Without substantial improvements in revenue generation or cost-cutting measures, the government could face a fiscal crisis.”
The document from the MTEF/FSP notes, “N9.64 trillion (including N1.02 trillion for GOEs) is provided for personnel and pension costs. This represents an increase of N3.56 trillion over the 2024 provision and reflects the impact of the new minimum wage and associated salary adjustments.”
Pension expenses are also projected to nearly double from N673 billion in 2024 to N1.44 trillion in 2025 and remain at this level through 2027.
“The reviewed pension rates for pensioners within the Service Wide Vote will align with the adjusted minimum wage, impacting both employer and employee contributions to pensions and the National Health Insurance Scheme (NHIS),” the document stated.
The World Bank has weighed in on the situation, noting that the wage hike’s benefits will be limited.
Alex Sienaert, the World Bank’s lead economist for Nigeria, stated, “The recent increase in the minimum wage is expected to impact only 4.1 per cent of the working-age population, primarily formal sector employees. For poverty alleviation, Nigeria needs broader job creation that offers sustainable incomes.”
Sienaert emphasized that expanding the employment base is crucial but insufficient on its own. “Addressing poverty will require a strategic push for more productive jobs that can support livelihoods sustainably,” he added.
This looming surge in personnel and pension expenditures comes at a time when the government is already grappling with revenue shortfalls and numerous development priorities.
The growing financial demands underscore the pressing need for fiscal reforms to avert deeper economic challenges.
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