In spite of the dwindling oil revenue, the federal government continues in its resolve to bridge the country’s huge infrastructure gap, which invariably has led to Nigeria’s high debt profile; BENJAMIN UMUTEME writes.
In what has become the proverbial between the devil and the deep blue sea, the federal government continues to borrow to fund its infrastructure which is almost collapsing. Everywhere one goes in the country, one would not fail to see what the federal government is trying to achieve.
However, in the face of falling revenue from the country’s manor revenue source -oil, it has become obvious that there is a need for new and innovative ways of bridging the country’s humongous infrastructure gap.
Falling revenue
For instance, the federal government raked in revenue of N3.344 trillion in 2019. In 2020, the federal government generated N3.42 trillion as revenue as against a projected amount of N5.365 trillion, indicating a shortfall of N1.947 trillion or 36.29%. Analysts attributed the 2020 revenue shortfall to the effect of Covid-19 pandemic on the global economy.
However, last year (2021), revenue fell to N3.9 trillion, with many attributing it to massive crude oil theft and oil pipeline vandalism which affected Nigeria’s ability to meet its OPEC+ production quota. The amount was against targeted revenue of N7.9 trillion for 2021.
Already, in 2022, the situation may likely be worse than 2021, with Nigeria’s daily crude production dropping to less than one million barrels per day at a certain point.
In the January-April fiscal performance report, Nigeria’s total revenue stood at N1.63 trillion.
Experts’ worries
What worries analysts is the fact that debt service obligations of the federal government are eating up a large chunk of revenues that should oil the wheels of government’s obligations to citizens.
For instance, while the government generated revenue for 2020 was N3.42 trillion.
And according to a non-governmental organisation, BudgIT, “In 2020, the federal government projected total revenue of N5.37 trillion; however, the actual total revenue eventually stood at N3.42 trillion. This represents a 63.71% revenue performance.”
“The cost of servicing the federal government’s debt is drowning Nigeria as the cost continues to grow, gulping a total of N3.34 trillion (97%) from the total revenue,” it noted.
In 2021, the federal government spent N3.43 trillion on debt servicing. In the first four months of 2022, debt servicing already stood at N1.94 trillion, higher than revenue generated by the federal government by over N300 billion.
This analysis poses a huge challenge to the government’s inability to fulfill its mandate of provision of critical infrastructure to Nigerians.
And this fear was voiced earlier this years by the Minister of State for Budget and National Planning, Prince Clem Agba, at the public consultation for the MTEF/FSS 2023-2025, when he said the federal government may not be able to execute capital projects due to debt servicing obligations which he linked to subsidies payment that is estimated to gulp over N6 trillion next year.
FG’s indecisiveness
Speaking exclusively to this reporter, the CEO of SD&D Management Limited, Gabriel Idakolo, said the issues such as fuel subsidies payment, continued allocation to revenue generating agencies, and low tax revenues should be quickly resolved by the government, if the government wants to come out of its present quagmire.
According to Idakolo, finding new ways to finance critical projects will lessen the burden on the government’s shoulders that comes with continued borrowing.
He said: “The recent measures undertaken by the government to curb crude oil theft will help to increase revenue.
“Nigeria also needs to stop budgetary allocations to all revenue generating agencies of the government because most of these agencies can sustain themselves from their revenue collection. JAMB is a perfect example.
“Nigeria also needs to critically look at our tax structure with a view of adequately taxing the rich and bringing more organisations and individuals into the tax net. The FIRS target on tax revenue should be doubled.
“The government as a matter of urgency should stop subsidy payment and put mechanisms in place to ensure Nigeria achieves self sufficiency in crude refining with both the government-owned and private refineries working at full capacity.
“Finally, we need to review our anticipated borrowing plan with a view of reducing our exposure and borrowing for infrastructure projects that can generate revenue to repay the loan,” he added.
Difficulty funding budgets
For political economist Adefolarin Olamilekan, the situation the country now finds itself is not only sad but difficult to understand. According to him, the government must change the ways it allocates funds to different sectors as well as adopt a pragmatic approach to revenue generation.
He said: “It sad and very difficult to believe as a nation we are completely finding it difficult to fund our budget except through borrowing. This really calls for a rethink on the part of managers of our political and economic affairs.
“Imagine the humongous allocation of N6.31 trillion to service debt. And the estimated revenues of N16.87 trillion that we are not even sure of meeting half of it, going by the tragic failure of 2022 N10 trillion revenue, of which less than N7 trillion was achieved.
“For us this raised a lot of concerns, especially with the burden of N1.11 overheads cost. Meanwhile, the capital component that is supposed to drive the economy and increase productive activities across the country is allocated N5.35 trillion.
“Although, the 2023 budget critically was not different from the previous budget of this current administration, the biggest challenge remains meeting up with set revenue targets.
“This is achievable, only that the government’s focus is still on the petro dollar income, which it set for itself in 2023, a whopping N1.9 trillion from 1.67million barrels of crude oil production daily at $70 exchange of N435. This scenario of using earnings from crude has been the bane of revenue failure from non oil sector accountability.”
Medium, long-term approach
Olamilekan is of the opinion that in the medium to long-term, the government must adopt a more pragmatic approach to revenue projection.
The development researcher said the government must endeavour to improve revenue collection efficiency as well as monitor closely MDAs and other government independent revenues sources diligently.
“Another is that implementation of the budget would require courageous fiscal policies to address and reduce the deficit so as to avoid further increases in our debt profile, but to ensure calibrate our macro-economic stability, grow confidence in the system and guarantee sustainable economic growth.
“Again, our case for the capital component is not far from a national strategic interest rather the importance of infrastructure to the stimulation of economic activities.
“Critically, dealing with corruption in our budget system must be reevaluated. We are concerned that the N2.42 trillion gifted to Government-Owned Enterprises (GoEs) as retail income must be thoroughly accounted for,” he said.
