Nigeria: The unending debt vs revenue debate

There have been arguments on whether or not Nigeria is in a debt crisis or better still if the country is faced with an enormous revenue challenge; BENJAMIN UMUTEME writes.

In the past couple of years, there have been increasing arguments about Nigeria’s debt crisis, but with the country’s earnings from oil-its mean source of revenue, on a continuous fall, some experts are beginning to say, the country is gradually entering a revenue crisis.

Data from the Debt Management Office (DMO) showed that Nigeria’s debt profile stood at $41.6 billion at the end of March 2022. This, in itself, continues to give citizens cause for concern with the country earning less than it projected in the first four months of 2022.

And with the resolve of the present administration to fix Nigeria’s decaying infrastructure, it has resorted to stoking up the debt profile.

As of June 2015, Nigeria’s debt profile stood at approximately N12.12 trillion. Fast forward to March 2022, then one would want to agree with many that the country has a debt crisis on its hands.

Even the World Bank and the International Monetary Fund (IMF) have on different occasions warned that the rate Nigeria’s public debt was growing posed an ‘existential threat’ to the country. They noted that with the country borrowing to find fuel subsidies, it was only a matter of time before it began to default on its debt-servicing obligations.

Data from the Budget Office of the Federation showed in the MTEF document presented recently to the public showed that the federal government projected gross oil and gas federation revenue for the first four months of the year was projected at N3.12 trillion but as at April 30, only N1.23 trillion was realised, representing a mere 39 per cent performance.

Meanwhile, Nigeria spent N1.94 trillion on debt servicing in the first quarter, N310 billion higher than actual generated revenue received in the same period.

The implication is that the country’s fiscal authorities are left with no other option but to resort to borrowing to meet its obligations.

The revenue challenge

Oftentimes, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, has said that contrary to popular opinions, the country is faced with a revenue challenge rather than a debt challenge. For Mrs. Ahmed, the country was not earning enough revenue causing the country to resort to borrowing to meet its obligations to citizens. According to her, with a low tax revenue base compared to its peers globally, it was impossible for the authorities to have enough funds to carry out critical projects.

Speaking at the Nigeria International Economic Partnership Forum in New York, recently, Ahmed said the country has yet to exceed its debt-to-GDP ceiling of 40 percent.

She said: “Everywhere we go, we hear this issue of the debt of Nigeria is a problem and is not sustainable. The debt and debt financing that we do in Nigeria is following a designed debt management strategy.

“As of today, and this has been reported by two previous speakers, Nigeria’s public debt stock is $100.1 billion or N14.6 trillion, which represents 24 per cent of the nominal GDP. This is below the 40% threshold that we have set up for ourselves.

“Nigeria operates a four year rolling medium term strategy which guides the borrowing strategy of the federal government. And we have specific indices that we closely monitor. The public debt that we set is 40 percent and we are at 24 per cent.

“We do have a revenue problem and this revenue problem, we’re tackling using the instrument of the strategic revenue initiative, the revenue challenges we have we have been addressing in a systematic manner.”

She added, “We have had a very significant impact in revenue performance based on the issues in the oil sector, and it is being addressed by the security agencies.

“There are some ineffective tax incentives that are currently in process of being reviewed, so some that have reached maturity will not be renewed, there might be some new ones that are being introduced, but we’re trying to make sure that we’re getting value for the investments that we have provided.”

Experts’ views

In a chat with Blueprint Weekend, the managing director of SD&D Management Limited, Gabriel Idakolo, agreed with the minister that the country was facing a revenue challenge.

According to him, Nigeria still has the lowest tax system compared to Ghana and South Africa. The country’s Value Added Tax stands at 7.5 per cent while that of Ghana is 12.5 per cent; Cameroun has 19.25 per cent; Mexico 16 per cent; South Africa at 15 per cent and Egypt at 14 per cent.

He noted that with drop in oil revenue, and other revenue sources not up and doing, it is always going to be an herculean task to meet revenue generating targets.

He said: “Nigeria definitely has a revenue challenge looking at the fact that 70 per cent of our 2023 budget will be borrowed. The projections from oil revenues have fallen short coupled with oil theft that has not been contained. The Federal Inland Revenue and probably Nigeria Customs Service are the only revenue heads that are still meeting their target while others have fallen short.”

For Adefolarin Olamilekan, a political economist, in reality, Nigeria is faced with a huge debt problem. He told this reporter that the country’s economic reality points to the fact that Nigeria has a huge debt challenge.

“The economic realities we live in as a nation do prove it that we are in debt.

Unfortunately, the thinking of the Nigerian state economic manager as well as orthodox neoliberal economists is that we are not yet there; the reason being that we are yet to borrow up to 40% of GDP of over $500 billion. With debt-servicing almost hitting N2 trillion in the first quarter of 2022, many are saying that the country is gradually moving into a position where it would be difficult to meet its debt obligations,” he said.

Also, a financial analyst, Aliyu Ilias, told this newspaper that with dwindling revenue, and fuel subsidies payment, the country might just be left with no option than to heap debt upon debt.

“If we borrow, it will make interest go up then to pay becomes a problem. The government will find it difficult because oil price is increasing globally, Nigeria will have more problems paying subsidies. We cannot run away from it, we may have mid-term borrowing due to additional expenditure that might crop up,” he said.

Navigating a difficult situation

Many have argued that Nigeria’s fiscal authorities need to re-strategise as it seeks to navigate a very difficult fiscal space. According to them, the resort to taking loans to develop its infrastructure needs looking into.

They also urged the government to not only come up with policies that would ease the pressure on businesses but also address the continuous decline of the naira.

“The government needs to put in place mechanisms to curb oil theft and encourage more investment in upstream and downstream sector of the oil industry by implementing the policies of the Petroleum Industry Bill (PIB) and create an enabling environment for new investments, the government in conjunction with the CBN needs to look at policies to stop the continuous decline in value of the Naira by looking at the official exchange rate and parallel market dichotomy which has encouraged the free fall of the Nigeria.

“The cost of doing business is very high which has made the cost of goods and services to increase beyond the reach of a larger percentage of the population so the government needs to look at policies that would create a favourable business climate for manufacturers, SMEs and technology firms, etc.

“The strategy of using borrowing to bridge funding gap would backfire on the government if revenue is not increased to meet debt servicing obligations because we are presently using almost 100% of our revenue for debt servicing.

“The government should by now encourage Public and Private Partnerships in most of the majors projects to be embarked upon going forward and ensure organisations willing to partner with government are given incentives like tax holidays, tax rebates, build operate and return model, etc, to make the proposal attractive. If the government looked at these alternatives to borrowing it would free up more cash to address other critical sectors like health, education and unemployment. This measure will also reduce our global loan exposure.”

On his part, Olamilekan said leveraging on the Public Private Partnership (PPP) would go a long way to free the country from its debt challenge as authorities would be able to deploy funds into other critical sectors.

“From a shared knowledge and understanding of the instrumentality and deployment of the PPP model especially with its successes and achievement in developed climes in providing quality infrastructure amongst others, we have no choice, but to seek out alternatives to loans and borrowing to fund our infrastructure deficits.

“Instructively, the PPP model is a readily available medium that we can leverage on as against borrowing. Nevertheless, our indulgence in the PPP model matters a lot in the realisation of the required PPP model that suits our national economic and strategic infrastructural development.”

Speaking further, the development researcher said the country’s continued reliance on oil revenue must change.

“The narrative economically must change at this point as petrol dollar revenue alone can no longer fuel the bill of development challenges.

“Chiefly as businesses in the informal sector are the very pride of every emerging economy as is being demonstrated in Malaysian, Indonesia and Singapore. Nigeria cannot take a back seat with our over 40 millions vendors and operators in the informal business sector. The government must be able to harvest tax revenue from them without much encumbrance to their existence and sustainability.”

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