One thing that has continued to baffle Nigerians is that despite the well -documented issue of falling revenue, the government’s expenditure continues to rise; BENJAMIN UMUTEME examines the trend in this report.
In mid-2014, when global price of crude crashed to less than $30 from an all-time high of $114 per barrel, market operators and watchers alike thought that it would be one of the many hiccups of a volatile oil market. But alas, the market has yet to hit the same height with market watchers saying that the world may never see another era like the pre-mid 2014.
The implication for Nigeria was that it drove the economy into recession with the newly elected All Progressive Congress administration led by President Muhammadu Buhari having to resort to borrowing to turn around the economy.
Nigeria had barely come out of the first recession when the Saudi-Russia price war erupted leading to another crash in oil prices that had started to stabilise. And in order to keep every market players happy, OPEC and non OPEC members had to come together to broker peace. The meeting which metamorphosed into OPEC+ was left with no choice than to push for production cut for all producers so as to ensure the market was not over supplied.
Infrastructure devt fuel spending
The urge to change the narrative of the past 16 years of Peoples democratic Party’s ‘misrule’ especially in the area of neglect of the country’s infrastructure, many say is the fuel driving behind the present administration’s spending.
For several decades now, Nigeria has continued to suffer from dearth of infrastructure occasioned partly by falling revenues and majorly from a lack of maintenance culture. And with successive governments preferring to spend more on recurrent expenditure than in fixing the country’s dilapidated infrastructure, the authorities are forced to go into borrowing from external sources to fund projects.
A report published by Moody Investors Services indicates that Nigeria would need to spend $3 trillion annually for the next 30 years to bridge her infrastructure gap.
Speaking during his inauguration, President Buhari said that his administration was committed to revamping Nigeria’s decaying infrastructure.
And through to his words, the APC government has made concrete efforts to put the country’s infrastructure in place albeit through borrowing as the country does have the kind of funds required to fix its infrastructure.
And the burden of the frequent borrowing has begun to impact the economy as the nation has been spending a large sum of its revenue on debt-servicing. Analysts say, Nigeria spends over 60 per cent of its revenue on debt servicing.
Huge debt burden
In its 2020 budget implementation analysis report, BudgIT revealed that Nigeria’s debt servicing obligations gulped 97 percent of total revenue. According to the civic-tech non-profit organisation, of the N3.42 trillion generated as revenue, Nigeria expended N3.34 trillion on debt-servicing.
“This means nearly all FG’s salaries, overhead & CAPEX (Capital Expenditure) were financed with loans & CBN support. 2020 Budget Implementation Analysis” report released on Friday, N4.65 trillion was spent on non-debt recurrent expenditure.
“In 2020, the federal government projected total revenue of N5.37tn; however, the actual total revenue eventually stood at N3.42 trillion. This represents a 63.71% revenue performance,” “The cost of servicing FG’s debt is drowning Nigeria as the cost continues to grow, gulping a total of N3.34tn (97%) from the total revenue. This is not acceptable!” the organisation said on Friday.
For the African Development Bank (AfDB), the 73 per cent of revenue spent to service debt in 2021 was worrying.
President of the bank, Dr. Akinwumi Adesina, at the opening of a two-day Mid Term Ministerial Performance Review Retreat in Abuja last year, said, “Nigeria must decisively tackle its debt challenges. The debt service to revenue ratio of Nigeria is high at 73%.
“Things will improve as oil prices recover, but the situation has revealed the vulnerability of Nigeria’s economy. To have economic resurgence, we need to fix the structure of the economy and address some fundamentals.”
Even the Debt Management Office (DMO) was explicit as it disclosed that $1.302 billion was expanded on debt servicing in the first half of 2021.
Data from the DMO further indicated that in the first quarter of the year (Q1), the country spent $1.003 billion to service debt and an additional $298.96 million to service debt in the second quarter of the year (Q2), which amount to $1.302 billion in the last six months.
To further raise the blood pressure of Nigerians, Fitch Ratings, projects that Nigeria’s debt- to-revenue ratio will rise to 395 per cent by 2022, indicating that growth rate in public debt would far outstrip its revenue.
The rating agency also stated that debt interest cost would consume 24 per cent of the country’s revenue in 2022.
Already, Nigeria’s debt-to-revenue ratio stood at 83 percent as at December 2020. It had risen to 89 percent between January and November 2020 before slowing down to the current.
“The GG debt-to-revenue ratio will rise to 395 percent in 2022 on our forecasts, versus a forecast ‘B’ median of 325 per cent. Debt interest cost will consume 24 percent of revenue in 2022, against a ‘B’ median of 11 per cent.
“The picture is much weaker at the federal government level, with forecast debt-to-revenue and interest-to-revenue ratios of 1,031 percent and 64 percent, respectively, in 2022, reflecting a higher share of the FGN in GG spending and debt than in GG revenue.”
Speaking at the public presentation of approved 2022 FGN budget, the Minister of Finance, Budget & National Planning, Mrs. Zainab Ahmed, stated that the country had more of a revenue challenge than a debt challenge as it is been bandied about in many quarters.
“The problem we have is that of revenue because we need revenue to improve infrastructure and to service debt. Even though the revenue is increasing, it is still not enough, and we cannot wait for revenue to improve before we improve critical infrastructure,” she said.
But is revenue really increasing?
N307.49bn shortfall in 4 months
However, the Central Bank of Nigeria’s latest economic report showed that the federal government recorded a revenue shortfall of N307.49 billion from July to October 2021.
The report indicated that the federation revenue improved in the third quarter of 2021 as a result of a sustained uptick in economic activities and crude oil prices.
“Total federation receipts in the third quarter of 2021 at N2.85tn exceeded the level in the second quarter of 2021 by 11.5 per cent. However, it was below the quarterly benchmark of N3.07tn by 7.3 per cent.
“Propelled by improved oil revenue inflow, arising from strong oil market fundamentals in the preceding months, federally-collected revenue in October 2021 rose relative to September 2021.”
The report further indicated that the federation revenue rose to N942.31 billion from N854.31 billion in September but fell short of the proportional benchmark of N1.02tn by eight per cent.
It said non-oil revenue accounted for 50.3 per cent of total federation revenue, while oil revenue made up the balance of 49.7 per cent. This closely compares with the 50.6:49.4 non-oil-oil revenue mix envisaged in the 2021 Appropriation Act,” the report stated.
According to the report, earnings from oil sources jumped by 52.5 per cent to N468.72 billion in October relative to September but fell short of the monthly target by 7.4 per cent (or N37.21 billion).
Addressing the conundrum
To address the revenue shortfall and shore up government’s earnings, the government in its 2022 budget introduced several measures.
According to the finance minister, efforts are ongoing to fix “our revenue challenge.”
“We must, however, continue to rationalise our expenditure as we cannot afford waste; In reality, our largest expenditure items are currently personnel cost, debt service and capital expenditure, which between them account for 85% of the 2022 budget; there is very little scope for cutting any of these over the medium term;
“The most viable solution to our fiscal challenge therefore remains to grow our revenues and plug all leakages. Our target over the medium term is to grow our Revenue-to-GDP ratio from about 8-9 percent currently to 15 per cent by 2025.
“At that level of revenues, the Debt-Service-to-Revenue ratio will cease to be a critical concern. The SRGI and other ongoing initiatives will address this. Identifying and plugging existing revenue leakages to enhance tax compliance and reduce tax evasion; Leveraging technology and automation; and plugging fiscal drainers like subsidies.
“To further enhance Independent Revenue collection, the government aims to optimise the operational efficiencies and revenue generation focus of GOEs as well as the introduction of new and further increases in existing pro health taxes for example, excise on carbonated drinks,” she said.