The Federal Government has projected a notable rise in personnel and pension costs for 2025, primarily driven by the implementation of the new minimum wage.

According to an analysis of the Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) for 2025-2027, personnel and pension expenses are expected to soar from N6.07 trillion in 2024 to N9.64 trillion in 2025, marking an increase of 58.7 percent.

The MTEF/FSP document outlines: “N9.64 trillion (including N1.02 trillion for GOEs) is allocated for personnel and pension costs.

This represents an increase of N3.56 trillion or 58.7 percent over the 2024 provision, driven mainly by the implementation of the new minimum wage and its consequential adjustments.”

Nigeria’s total recurrent (non-debt) expenditure is also set to rise from N11.27 trillion in 2024 to N14.21 trillion in 2025, a 26 percent increase.

This category, which includes personnel costs, pensions, and other administrative expenses, is projected to grow further to N14.38 trillion in 2026 and N14.59 trillion in 2027, highlighting the growing fiscal pressure of sustaining government operations.

Personnel costs for Ministries, Departments, and Agencies (MDAs) are forecasted to rise sharply, from N4.79 trillion in 2024 to N7.17 trillion in 2025, reflecting a 49.7 percent increase. Similarly, personnel costs for Government-Owned Enterprises (GOEs) are expected to grow from N608 billion in 2024 to N1.02 trillion in 2025, an increase of 67.2 percent. Combined personnel costs will surge from N5.4 trillion in 2024 to N8.19 trillion in 2025, a 51.7 percent rise. By 2026, these costs are anticipated to reach N8.47 trillion and continue to climb to N8.79 trillion by 2027, underscoring the long-term fiscal impact of the new wage policy.

Regarding the personnel cost increase, the document notes: “The 2025 FGN personnel cost expenditure is expected to rise significantly to reflect the updated National Minimum Wage. The personnel cost for FY2023 was N3.83 trillion. As of July, the figure for FY2024 stands at N2.67 trillion, which is 65 percent of the N4.10 trillion appropriated in the 2024 Budget. For 2025, personnel costs are projected to increase by about 60 percent due to adjustments in the minimum wage and its consequential effects, which will directly influence employees’ salaries. Additionally, employee and employer contributions to pension and NHIS will be impacted as part of the personnel cost.”

The cost of pensions, gratuities, and retirees’ benefits is also expected to grow substantially, nearly doubling from N673 billion in 2024 to N1.44 trillion in 2025. Interestingly, this figure is projected to stabilize at N1.44 trillion in 2026 and 2027, suggesting that while personnel costs are the primary driver of expenditure increases, pension obligations will remain a steady contributor.

On the increase in pension costs, the document states: “The reviewed pension rates for pensioners in the Service Wide Vote will be higher in FY2025. Following the minimum wage adjustments, employee and employer contributions to pension and NHIS will be affected as part of the personnel cost.”

This dramatic rise in personnel and pension costs raises serious questions about Nigeria’s fiscal sustainability. The projected 58.7 percent increase in 2025 is set to put significant strain on the Federal Government’s finances, especially amid ongoing revenue challenges and competing developmental needs.

The World Bank has previously cautioned that the recent increase in Nigeria’s minimum wage will only benefit a small segment of the population, impacting just 4.1 percent of working-age Nigerians. Alex Sienaert, the World Bank’s lead economist for Nigeria, shared this insight during the launch of the Nigeria Development Update (NDU) report in Abuja. Sienaert explained that while the wage hike is significant, its direct impact will be limited, as it mainly affects formal wage earners. He stressed that addressing poverty requires more than expanding employment, emphasizing the need for productive jobs that offer sustainable livelihoods. (Daily Sun)