As tensions over the new minimum wage subside, concerns about the burden of payment on federal, state, and local governments, as well as the organized private sector, remain. To meet the new wage bill and fund capital expenditures, states should explore ways to increase their internally generated revenue (IGR). Additionally, all levels of government should broaden the tax net and implement ease-of-doing-business policies to prevent massive job losses in the private sector.
President Bola Tinubu signed the new minimum wage bill into law on Monday, setting a national minimum wage of N70,000 for workers and allowing labor unions to renegotiate the wage every three years.
However, the new wage law imposes a significant financial burden on employers. The Senate approved a supplementary budget of N6.2 trillion to the 2024 Appropriation Act, raising the total budget from N28.7 trillion to N35.5 trillion to accommodate the wage increase and support strategic infrastructural interventions.
This increase in the budget comes with a rise in the existing deficit, adding N3 trillion to the initial N10 trillion deficit. The reliance on the windfall tax on banks’ forex gains could exacerbate borrowing and debt servicing obligations.
In 2023, Nigeria spent N7.8 trillion on debt servicing, a 121 percent increase from N3.52 trillion in 2022. A report by PwC Nigeria predicts that debt service could rise from N8.3 trillion in 2024 to N9.3 trillion in 2025 and N11.1 trillion in 2026. This situation threatens Nigeria’s credit rating outlook and its ability to service debt.
To address these challenges, the Federal Government should urgently cut the cost of governance, tackle insecurity to restore public confidence, and invest in capital infrastructure to attract foreign direct investments (FDIs).
Unfortunately, the government faces a difficult situation. The removal of petrol subsidies and the floating of the naira have had adverse economic consequences. Rising inflation and the high cost of living compelled the government to increase the minimum wage by 133 percent. While workers anticipate more than double their salaries, inflation, currently at 34.19 percent, continues to be a significant issue.
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