Nigeria’s economy is looking gloomy ahead of the 2023 general elections with many questions surrounding its revenue generation potential after the Debt Management Office announced that public debts hit a whooping N41.60 trillion.
With Africa’s largest economy spending beyond what it generates, analysts say Nigeria will plunge into a debt crisis if its revenue base is not strong enough to service the debt sustainably.
“The provisional federal government of Nigeria (FGN) retained revenue, at N1,265.34 trillion, the CBN’s economic report for the fourth quarter of 2021 obtained by TechEconomy shows.
Meanwhile, in the third quarter of that same year, the country’s revenue was N2,232.33 trillion. Analysis of the two figures – N1.265 in Q4 and N2.232 in Q3 indicates a fiscal deficit of 12 percent. A fiscal deficit represents a shortfall in a government’s income compared with its spending.
The report added that at N2,844.73 trillion, provisional federation receipts fell below the quarterly benchmark and the level in the preceding quarter by 7.5 percent and 0.7 percent, respectively.
In contrast to CBN’s figures on Nigeria’s revenue, based on Trading Economics’ Global Macro Models, analysts expect the country to generate N930 billion by the end first quarter of 2022, which is far below its expenditure.
Debt Crisis
Nigeria’s total debt as of March 31, 2022, was N41.60trn or $100.07bn which represents the domestic and external debt stocks of the Federal Government of Nigeria, the thirty-six state governments, and the Federal Capital Territory.
The Debt Management Office said on its website that comparative figures for December 31, 2021, were N39.56trn or $95.78bn.
Recall that TechEconomy reported the Federal Government offering 2 new (FGN) savings bonds for subscription at N1,000 per unit.
FGN savings bonds are debt securities issued by the Nigerian government to help pay for its borrowing needs. It is considered one of the safest investments because they are backed by the full faith and credit of the government.
“Government tends to argue that the conditions were not a debt problem, but a revenue challenge. Debt becomes a problem if the revenue base is not strong enough to service the debt sustainably,” Dr. Muda Yusuf, CEO, Centre for the Promotion of Private Enterprise.
In a document- 2021 Article IV published on February 7, 2022, the International Monetary Fund (IMF), noted that the Nigerian government could spend as much as 92.6 percent of its revenue on debt servicing in 2022.
According to Yusuf, the government’s actual revenue can hardly cover the recurrent budget and that implies that the entire capital budget and part of the recurrent expenditure are being funded from borrowing.
“Nigeria “is living on extra time” due to the numerous challenges confronting it,” says Muhammadu Sanusi II, ex-governor of the Central Bank of Nigeria (CBN) in February.
Sanusi predicted that the country would face more difficult times in 2023 and called on Nigerians to be ready to take tougher decisions in the interest of the country.
What is needed is the political will to cut expenditure and undertake reforms that could scale down the size of the government, said Yusuf, suggesting a reduction in the cost of governance cost and ease of fiscal burden on the government.
Growth Potentials
The Nigerian government will have to ensure that borrowings are used strictly to fund capital projects, especially infrastructure projects, that will strengthen the productive capacity of the economy.
According to Yusuf, emphasis should be on concessionary financing, as opposed to commercial debts, which are typically very costly.
The growth prospects for the Nigerian economy remain positive but fragile in the near term, on the back of a rebound in manufacturing activities, improvements in vaccination rates, and the supportive impact of CBN interventions on growth-enhancing sectors.
CBN, however, said in its economic report that the lingering security challenges and the delayed implementation of the Petroleum Industry Act (PIA) are the major downside risks to growth.
Nigeria’s Gross Domestic Product (GDP) grew by 3.11 percent (year-on-year) in real terms in the first quarter (Q1) of 2022, the National Bureau of Statistics (NBS)
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